The Downside of Using a Tax to Target Specific Activities

question 20

Multiple Choice

The downside of using a tax to target specific activities, rather than the externality itself, is:

• A)it risks misaligning the incentives that producers and consumers face with the goal of minimizing the externality.
• B)it requires a number of different activities to be identified and several different policies to be written, which can be cumbersome and difficult to manage.
• C)any one activity is likely to not make a significant difference in the presence of an externality.
• D)All of these statements are true.

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Definitions:

REST Technique

Restricted Environmental Stimulation Technique, a method reducing sensory input to promote relaxation or alter consciousness.

Hypertension

A medical condition characterized by high blood pressure, which can lead to serious health complications if left untreated.

Shyness

A temperament or personality trait characterized by feelings of apprehension, lack of confidence, or nervousness in social situations.

Overeating

Consuming food in quantities greater than the body’s energy requirements.