Taxes on External Costs Are Unlike Other Taxes Because They

question 90

Multiple Choice

Taxes on external costs are unlike other taxes because they

• A) distort the incentives of the firms being taxed.
• B) move the allocation of resources closer to the social optimum.
• C) lead to a large deadweight loss.
• D) raise revenue for the government.

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Definitions:

Net Loss

The amount by which total expenses exceed total revenues for a business during a specific period, indicating a financial loss.

Spot Rate

The current exchange rate at which a currency can be bought or sold for immediate delivery.

Exchange Gains

arise from holding foreign currencies and result from favorable changes in exchange rates, leading to an increase in the domestic currency value of the foreign currencies held.

Foreign Currency

Currency used in a country other than one's own, implying the need for exchange rate conversion in international transactions or financial reports.