Raising the tax rate on essential goods—a traditional means of increasing government revenues—invariably turns low– a...

Bilal on December 31, 2019

Answer choice C

Why is C correct?

1 Reply

Victoria on January 15, 2020

Hi @baahmed7860,

Happy to help!

Government officials predict that taxing luxury items would increase government revenues while minimally impacting the general population as it would only affect those wealthy enough to purchase such items.

Answer choice (C) is correct because a negative answer to this question would greatly impact the accuracy of this prediction.

If sales of luxury items decrease due to the new tax, then it is possible that the tax would generate little additional revenue, making the prediction that there would be a "substantial increase" in government revenues false. In this way, the accuracy of the prediction is dependent on the sales of luxury items remaining relatively constant or increasing.

Hope this is helpful! Please let us know if you have any further questions.