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:

Deferred Gross Profit

The portion of profit resulting from sales made on installment that is not recognized immediately but deferred to future periods.

Gross Profit

The difference between the revenue generated from sales and the cost of goods sold, indicating the basic profitability of a company's products or services.

Consignment-out

The process of sending goods to another party to sell on behalf of the sender, retaining ownership until the goods are sold.