Sana values a pair of blue jeans at Rs400. If the price is Rs350 Sana buys the jeans and generates consumer surplus of Rs50 Suppose a tax is placed on blue jeans that causes the price of blue jeans to rise to Rs450 Now sana chooses not to buy a pair of?
Correct answer: A. the deadweight has demonstrated
- A. the deadweight has demonstrated
- B. the ability-to-pay principle
- C. the benefits principle
- D. horizontal equity
- E. The administrative burden of a tax.
Explanation
Sana values the jeans at Rs400 but refuses to buy them at Rs450, so a mutually beneficial transaction is prevented by the tax. That lost surplus is a deadweight loss, not a statement of the benefits or ability-to-pay principles.
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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.
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