Al Believes That SUVs Have Negative Social and Environmental Effects

question 45

Multiple Choice

Al believes that SUVs have negative social and environmental effects because of their increased carbon monoxide emissions. He proposes eliminating sales taxes on smaller automobiles in favor of higher sales taxes levied on SUVs. Al performs some calculations and comes to the conclusion that based on the current number of SUVs owned in the U.S. exactly the same amount of total sales tax will be collected under his reformed system. Which of the following concepts explains why Al's idea may not work?

• A) The ability to pay principle
• B) Horizontal equity
• C) Substitution effect
• D) Vertical equity
• E) None of these

---

Definitions:

Valuation Risk

The potential for loss that arises from inaccuracies or errors in assessing the value of assets, liabilities, or investments.

Micro Political Risk

Micro political risk involves the impact of political decisions, events, or conditions on an individual firm's operations and performance, as opposed to the broader industry or economic segment.

Macro Political Risk

Adverse political actions that affect all foreign investments and operations in a host country.

Reputational Risk

The potential for loss resulting from damages to a firm's reputation, which can affect its business operations and financial performance.