Except for taxes to offset ______ taxes are ______?
Correct answer: B. externalities , distortionary
- A. imperfect competition popular
- B. externalities , distortionary
- C. inequality , a first best option
- D. poor health, unnecessary
Explanation
Most taxes distort decisions by creating a wedge between buyers’ and sellers’ prices, but a tax correcting an externality can improve efficiency. Thus, except for externality-correcting taxes, taxes are generally distortionary.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? [email protected]
About Public Finance
Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
Practise Public Finance
406 free Public Finance MCQs from Economics, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Discussion
Stuck on an option, or know a faster way to get there? Ask or explain it here.
No comments yet. Be the first to explain this one.
Exams that ask Economics questions like this
Economics is on 2 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Public Finance questions
Taxes creates a wedge between the sales price and purchase price that prevents the price system equating ____ and ______?
The effect of a tax to offset a negative externality will be to ____ price and ______ quantity?
The government is considering placing a tax on cigarettes to raise revenue to finance health-care benefits. The demand for cigarettes is price inelastic Which of the following statements is True ?
If the consumption of good by one person does not reduce the quantity available by others and nobody can be easily excluded from consumption, we are referring to a ?
Markets sometimes fail to exist because of________?
Externalities arise because there is a divergence between ________ and _________?