The Principle of Second Best States That

question 11

Multiple Choice

The principle of second best states that

• A) if previously existing distortions exist, a distortionary tax may actually improve efficiency.
• B) the broader based the tax, the less distortionary it is.
• C) the more inelastic the demand for a product, the less distortionary a tax on the product would be.
• D) taxes should be constructed so that they are neutral.

---

Definitions:

Environment

The surroundings or conditions in which a person, animal, or plant lives or operates.

Strengths and Weaknesses

Refers to the positive and negative attributes of an individual's personal qualities or aspects of a thing or concept.

Cognitive Flexibility

The mental ability to switch between thinking about two different concepts or to think about multiple concepts simultaneously.