Question

Identify and explain one advantage and one disadvantage to BMW if the government increased value added tax

Answer 1

The advantage for BMW is that an increase in value added tax will also affect BMW cars. This means that BMW will be more expensive, making it likely to for BMW earn more revenue, and thus, for its stockholders to earn more profit.

However, the disadvantage is exactly the same, just the other way around: the VAT increase would also affect prices for many parts, supplements, and other goods and services that BMW acquires to make cars. This in turn will also raise production costs, making higher selling prices not only a possibility, but likely a necessity in order to maintain profit margins.