Which Statement Is True of a Tax Levied on One

question 5

Multiple Choice

Which statement is true of a tax levied on one product in a general equilibrium model?

• A)Taxes always distort the most efficient flow of resources in an economy.
• B)Taxes cannot distort efficient resource flows because they become part of the price.
• C)Taxes on producers distort efficient resource flows but taxes on consumers do not affect efficiency.
• D)Taxes will hurt efficiency unless they are designed to offset other inefficiencies in the system.

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Definitions:

Aristotle

An ancient Greek philosopher and polymath whose writings covered a wide range of subjects, including physics, metaphysics, poetry, theater, music, logic, rhetoric, politics, and ethics.

Nature

All aspects of the material world around us, such as wildlife, vegetation, geographical features, and other naturally occurring elements and formations on earth, excluding humans and their inventions.

Nurture

The process by which environmental factors contribute to the growth and development of an individual.

Plato

An ancient Greek philosopher who laid the foundational elements of Western philosophy and science.