A Benefit of Taxes Over Regulation to Internalize Externalities Is

question 43

Multiple Choice

A benefit of taxes over regulation to internalize externalities is

• A) it is easier to choose the optimal amount of taxes than the optimal amount of regulation.
• B) regulations are more difficult to impose than taxes.
• C) taxes equate the social costs with the social benefits.
• D) taxes provide incentives to adopt new methods to reduce the externality.

---

Definitions:

Total Revenue

The sum of money a company earns from selling its products or services, prior to deducting any costs.

Elastic

Describes a situation in which the quantity demanded or supplied of a good or service changes significantly as its price changes.

Inelastic

A characteristic of goods whereby a change in price leads to a relatively smaller change in the quantity demanded or supplied.

Total-revenue Test

A method used to determine the price elasticity of demand by observing changes in total revenue as a result of price alterations.