Vertical Equity Holds That

question 152

Multiple Choice

Vertical equity holds that

• A) those with equal ability to pay should bear equal tax burdens.
• B) those who benefit the most from governmental services should bear the higher tax burden.
• C) those with greater ability to pay should pay more.
• D) those with equal ability to pay should bear unequal tax burdens.

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Definitions:

Adverse Selection

A situation where asymmetric information leads to the selection of undesirable participants in a transaction or contract, often seen in insurance markets.

Consumer Surplus

The divergence between the total sum consumers are inclined and able to disburse for a merchandise or service, and the total sum they actually disburse.

Negative Externality

A cost that affects a party who did not choose to incur that cost, often associated with production or consumption activities.

Opportunity Cost

The cost of foregoing the next best alternative when making a decision, representing the benefits that could have been received if a different decision were made.