The Principle of Second Best States That

question 11

Multiple Choice

The principle of second best states that

• A) if previously existing distortions exist, a distortionary tax may actually improve efficiency.
• B) the broader based the tax, the less distortionary it is.
• C) the more inelastic the demand for a product, the less distortionary a tax on the product would be.
• D) taxes should be constructed so that they are neutral.

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Definitions:

Noncash Assets

Assets owned by a business that are not in the form of cash but can be converted into cash within a year, including inventory, real estate, and investments.

Safe Cash Payments

Transactions made in cash that are secure and minimize the risk of theft or loss.

Liquidation Expenses

Costs associated with winding up a company's operations, selling off assets, and paying off creditors in the event of liquidation or bankruptcy.

Profits and Losses

The financial results of a company's operations, indicating the net money made or lost within a specific period.