A Tax in an Efficient Market

question 128

Multiple Choice

A tax in an efficient market:

• A) increases efficiency.
• B) decreases total surplus.
• C) maximizes total surplus.
• D) often fails to generate revenue.

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Definitions:

Holding Money

The act of keeping money in cash or in very liquid assets to facilitate transactions or as a precaution against uncertainties.

Interest Rate

The percentage charged on borrowed money or paid to savers, representing the cost of borrowing or the return on savings.

Money Demanded

The total amount of money that households and firms want to hold at any given time, influenced by income levels, interest rates, and economic activity.

Market Interest Rate

The prevailing rate at which borrowers can obtain money from lenders, influenced by supply and demand in the money market.