Assume That a 50 Per Cent Petrol Tax Led to a Large

question 27

Multiple Choice

Assume that a 50 per cent petrol tax led to a large increase in its price and only a small decrease in the quantity of petrol demanded. Economic analysis would lead one to conclude that

• A) petrol should be taxed because the benefits of the tax would exceed the costs.
• B) petrol should not be taxed because the benefits are uncertain.
• C) petrol should not be taxed on ethical grounds since ethical benefits and costs can't be measured.
• D) the benefits of taxing petrol is a normative issue. Economic analysis can be used to contribute to discussion of this issue but cannot decide it.

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