Quote:
Originally Posted by paulsalter
I did yes, the product cost is irrelevant for the scenario we are talking about
Using the figures you show as they are easier to work with
Retailer sets the price at £100, this is based upon all the costs of the product (including the VAT)
I pay £100 when i buy this
With VAT at 20%, the retailer will pay the government £20
Now lets say that the VAT rate drops down to 10%
There is no automatic reduction of the price this product is sold to the customer, though the Retailer can increase to take this into account
So unless the retailer changes things, this product is still selling at £100
I pay the retailer £100
With VAT now at 10%, the retailer will pay the government £10
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And for every sale, there will be a £10 profit. The VAT savings should be passed on to the consumer. If you were looking at two eBooks you want to read and one was priced at £3.99 and the other priced at £3.32 and you could only buy one of them, you would buy the one at £3.32 given that the desire to read these is the same.
So sales of the £3.32 eBook increase while sales of the £3.99 eBook decrease.