Taxes creates a wedge between the sales price and purchase price that prevents the price system equating ____ and ______?
Correct answer: A. marginal costs, marginal benefits
- A. marginal costs, marginal benefits
- B. demand, supply
- C. marginal cost, marginal revenue
- D. marginal cost, average cost
Explanation
A tax creates a gap between the price paid by consumers and the price received by producers, so marginal benefit is no longer equal to marginal cost. This is the tax wedge represented by option a.
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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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