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Chapter 2 Review Exercises

Chapter 2 Review Exercises
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  • 17. Finding a Sales Tax

    In many places, cigarettes are exempt from sales tax. However, some tax jurisdictions charge sales tax on cigarettes in addition to an excise tax. For instance, retailers in Colorado charge a 2.9% state sales tax on cigarettes. What is the sales tax on a $5.50 pack of cigarettes in Colorado?

    • Worked-Out Solution

      The sales tax is $0.16.

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      ______     ___      ______     ___      ______  
     /_   _//   / _ \\   /_   _//   / _ \\   /_   _// 
     `-| |,-   / //\ \\  `-| |,-   / //\ \\    | ||   
       | ||   |  ___  ||   | ||   |  ___  ||  _| ||   
       |_||   |_||  |_||   |_||   |_||  |_|| /__//    
       `-`'   `-`   `-`    `-`'   `-`   `-`  `--`     
                                                      
    
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  • 18. Finding a Sales Tax Rate

    A convenience store charges $5.75 for a pack of cigarettes. The sales receipt shows that you paid a total of $5.98 including $0.23 in sales tax. Find the sales tax rate.

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     _    _     ______    ____     _    _      _____  
    | |  | ||  /_   _//  |  _ \\  | || | ||   / ___// 
    | |/\| ||   -| ||-   | |_| || | || | ||   \___ \\ 
    |  /\  ||   _| ||_   | .  //  | \\_/ ||   /    // 
    |_// \_||  /_____//  |_|\_\\   \____//   /____//  
    `-`   `-`  `-----`   `-` --`    `---`   `-----`   
                                                      
    
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  • 19. Finding an Excise Tax

    A customer buys four packs of cigarettes in Tennessee. How much does the customer pay in federal and state excise taxes?

    • Worked-Out Solution

      The total the customer pays in state and federal excise taxes is

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    __    __    _____     ______    _____             
    \ \\ / //  |  ___||  /_____//  |  ___||   ____    
     \ \/ //   | ||__    `____ `   | ||__    |    \\  
      \  //    | ||__    /___//    | ||__    | [] ||  
       \//     |_____||  `__ `     |_____||  |  __//  
        `      `-----`   /_//      `-----`   |_|`-`   
                         `-`                 `-`      
    
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  • 20. Finding Federal and State Excise Taxes

    In Connecticut, a customer purchases 2 packs of cigarettes for $11.50. What percent of the cost is allocated to federal and state excise taxes?

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               _    _   __    __     ___      ______  
      ____    | || | || \ \\ / //   / _ \\   /_   _// 
     |    \\  | || | ||  \ \/ //   / //\ \\    | ||   
     | [] ||  | \\_/ ||   \  //   |  ___  ||  _| ||   
     |  __//   \____//     \//    |_||  |_|| /__//    
     |_|`-`     `---`       `     `-`   `-`  `--`     
     `-`                                              
    
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  • 21. Comparing Excise Tax and Value-Added Tax

    How is an excise tax different from a value-added tax?

    • Worked-Out Solution

      A value-added tax is a type of ad valorem tax, which means that it is a percent of the value.

      An excise tax is normally based on the quantity being sold (gallons of gasoline or packs of cigarettes), and is not dependent on the price of the gasoline or cigarettes.

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       _____   __   __   _    _     ______   ______   
      / ___//  \ \\/ // | \  / ||  /_   _// |      \\ 
      \___ \\   \ ` //  |  \/  ||   -| ||-  |  --  // 
      /    //    | ||   | .  . ||   _| ||_  |  --  \\ 
     /____//     |_||   |_|\/|_||  /_____// |______// 
    `-----`      `-`'   `-`  `-`   `-----`  `------`  
                                                      
    
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  • 22. Increase in Excise Tax

    In 1995, the federal excise tax on a pack of cigarettes was $0.24.

    1. Use a percent to describe the change in the federal excise tax from 1995 to 2010.
    2. How might the government justify the increase?
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       _____     ___      _  _     ______            
      / ___//   / _ \\   | \| ||  /_   _//     ___   
      \___ \\  | / \ ||  |  ' ||   -| ||-     /   || 
      /    //  | \_/ ||  | .  ||   _| ||_    | [] || 
     /____//    \___//   |_|\_||  /_____//    \__ || 
    `-----`     `---`    `-` -`   `-----`      -|_|| 
                                                `-`  
    
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