Which of the Following Illustrates the Principle of Second Best

question 22

Multiple Choice

Which of the following illustrates the principle of second best?

• A) The government imposes taxes on gasoline, and the tax revenue collected is used to pay for road repair.
• B) The government decides to impose taxes on all grains, rather than imposing a tax only on wheat.
• C) The government imposes a tax on a paper manufacturer that equals the cost of cleaning the river damaged by the waste discharged into the river by the paper manufacturer.
• D) A tax imposed on land, because this tax distorts economic decisions less than taxes on other factors of production.

---

Definitions:

Section 402A

A section of the Restatement (Second) of Torts that made manufacturers and suppliers liable for harm caused by defective products provided to consumers without the need for proving negligence.

Punitive Damages

Compensation awarded in a lawsuit as a punishment to the defendant and to deter future similar conduct, above and beyond mere compensation for losses.

Defendant

Someone or an organization that stands accused or is being sued within a legal court system.

Award

The result of an arbitration process or a decision by a judge that gives one party a legally binding benefit, such as monetary damages.