Which one of the following is a likely consequence of a cut in income tax: households have more disposable income, imports always become cheaper, business i...
Question 1 Report
Which one of the following is a likely consequence of a cut in income tax: households have more disposable income, imports always become cheaper, business interest payments rise, or inflation immediately falls? A chain of hair salons is planning a marketing campaign after an income-tax cut. The salons offer basic cuts, colouring and premium treatments.
(a) Which consequence from the list is most likely? [1]
(b) Identify one premium treatment the salon could promote as demand rises. [1]
(c) Explain one reason why an income-tax cut could increase the salons' sales. [2]
(d) What is meant by disposable income? [1]
(e) Which business objective could be helped by an increase in sales revenue? [1]
Answer Details
(a) A cut in income tax means households have more disposable income. [1]
(b) The salon could promote colouring or another suitable premium treatment. [1]
(c) Employees keep more of their earnings after paying income tax. Their disposable income rises, so they may spend more on non-essential services such as salon treatments, increasing the salons’ sales. [2]
(d) Disposable income is income left after direct taxes have been paid. [1]
(e) Higher sales revenue can help the objective of profit maximisation, growth, increased market share, or survival, provided the increase in sales supports that objective. [1]
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