Even If a Tax Imposed in a Market Generates a Loss

question 134

Multiple Choice

Even if a tax imposed in a market generates a loss in surplus for the participants in that market, the tax could still increase economic efficiency if:

• A)voters approve of the tax.
• B)the government needs to generate tax revenue.
• C)the public expenditures financed by the tax lead to a big enough increase in economic surplus.
• D)the tax revenue is used to fund spending by local governments.

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Definitions:

Incentive Compatibility

A concept in economics and game theory that occurs when the incentives align with the desired outcomes, ensuring that participants act in a way that leads to an optimal outcome for all involved.

Supervise

The act of overseeing, directing, or managing activities and tasks of individuals or groups to ensure objectives are met.

Expected Income

The amount of money an individual anticipates earning over a certain period, based on current or future situations.

High Effort

A significant level of energy, work, or commitment applied to achieve a goal or task.