word problem

Question

The sales tax in your friend’s state just went from 5% to 6%. Your friend says that’s not bad—it’s only a 1 percent increase. In what way is your friend correct? In what way is your friend incorrect?

Answer 1

If sales tax is 5%, it is only 5 cents on he dollar. Before he increase if you bought a $1.00 candy bar the total with tax would be $1.05. Now, with the increase, the total would be $1.06. The increase in the candy bar is just a penny. No big deal. Say you purchased a $10,000 car, though. 10,000 x .05 = 500 so the total would be 10,500. By adding just the 1%, the total for the car would be 10,600 with the 6% sales tax, which does make quite a difference. 

Answer 2

Going from 5 to 6% is a 100*(6-5)/5 = 20% increase in the tax rate which is a large increase by almost any standard.

It is true that the difference in the tax rates is only one percentage point but that does not determine what you will pay and therefore is not an important number.

 

Jim