Most Taxes Distort Incentives and Move the Allocation of Resources

question 32

Multiple Choice

Most taxes distort incentives and move the allocation of resources away from the social optimum. Why do corrective taxes avoid the disadvantages of most other taxes?

• A)Corrective taxes apply only to goods that are bad for people's health, such as cigarettes and alcohol.
• B)Because corrective taxes correct for market externalities, they take into consideration the well-being of bystanders.
• C)Corrective taxes provide incentives for the conservation of natural resources.
• D)Corrective taxes do not affect deadweight loss.

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Definitions:

Media Multiplexity

A theory that suggests individuals use multiple communication channels to maintain their relationships.

Social Network Theory

A theoretical framework that examines the social structures made up of individuals or organizations and the interactions between them.

Networks Effect

The phenomenon whereby a product or service gains additional value as more people use it, often seen in telecommunications and social media platforms.

Network Effect

A phenomenon where the value of a product or service increases as more people use it, creating a positive feedback loop of growth.