Which of the Following Illustrates the Principle of Second Best

question 85

Multiple Choice

Which of the following illustrates the principle of second best?

• A) The government imposes taxes on cigarettes and the tax revenue collected is used to pay for health care.
• B) The government decides to impose taxes on all automobiles rather than imposing a tax only on luxury automobiles.
• C) The government imposes a tax on a meat processing plant that equals the cost of cleaning the lake damaged by the waste discharged into the lake by the meat processor.
• D) A tax imposed on land, because this tax distorts economic decisions less than taxes on other factors of production.

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Definitions:

Investing Activities

Transactions involving the purchase and sale of long-term assets and investments not considered cash equivalents.

Indirect Method

A cash flow statement preparation approach that adjusts net income for non-cash transactions and changes in working capital to calculate operating cash flow.

Comparative Balance Sheet

A financial statement that presents a company's assets, liabilities, and equity at two or more points in time, allowing for comparison and trend analysis.

Operating Activities

Operating activities include the primary revenue-generating activities of a business, as well as other activities that are not investing or financing activities, reflecting the company's core operations cash flow.