Tax Policy Is Partly Based on the Notion That

question 268

Multiple Choice

Tax policy is partly based on the notion that

• A) high taxes are preferable to low taxes.
• B) governments must always run a budget surplus.
• C) markets never work efficiently.
• D) people respond to financial incentives.

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Definitions:

Ricardian Model

An economic theory that focuses on comparative advantage, explaining how countries can gain from trade by specializing in producing goods at a lower opportunity cost.

Production Possibility Frontiers

These are curves that depict the maximum potential output of a combination of two goods or services that an economy can produce with available resources.

Opportunity Cost

Forgoing the benefit of the next preferable alternative comes at a cost during decision-making.

Production Possibility Frontier

A curve depicting all maximum output possibilities for two goods, given a set of inputs and production technology.