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If the Government Sets a Specific Tax and an Ad

question 118

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If the government sets a specific tax and an ad valorem tax so that they raise the same amount of tax revenue,why does the ad valorem tax reduce output less than the specific tax?


Definitions:

Risk-Free Rate

The theoretical return on an investment with zero risk, serving as a benchmark for evaluating other investments.

Market Rate

The typical or prevailing price level for goods or services in a competitive market, or the interest rate available for loans and deposits in the financial market.

Portfolio Beta

A measure that reflects the sensitivity of a portfolio's returns to movements in the market returns, representing the portfolio's systematic risk.

Common Stocks

Equities that represent ownership shares in a corporation, giving holders voting rights and a claim on a portion of the company's profits through dividends.

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