Question

Suppose that California imposes a sales tax of 10 percent on all goods and services. A Californian named Ralph then goes into a home improvement store in the state capital of Sacramento and buys a leaf blower that is priced at $200. With the 10 percent sales tax, his total comes to $220. How much of the $220 paid by Ralph will be counted in the national income and product accounts as private income (employee compensation, rents, interest, proprietors' income, and corporate profits)

Answer 1

The actual amount that will be considered is $200

Step-by-step explanation:

Given

Total Amount Paid = $220

Tax = 10% of Actual Cost

Calculating the actual amount Ralph paid that will be counted in the national and product accounts as private Income.

The translation of this is that we're to calculate the amount paid excluding the tax

We'll get that using the formula below;

Total Amount Paid = Tax + Actual Cost

Let C represent Actual Cost.

By substituton, we have

$220 = 10% of C + C

$220 = 0.1C + C

$220 = 1.1C

Make C the subject of formula

C = $220/1.1

C = $200

Hence, the actual amount that will be considered is $200