The Inefficiency of a Sales Tax on a Good Is

question 2

Multiple Choice

The inefficiency of a sales tax on a good is ultimately the result of the

• A) low tax revenue earned by the government relative to the cost of collection.
• B) wedge between what buyers pay for the good and what sellers receive for the good.
• C) buyers being unable to avoid paying the tax.
• D) sellers being unable to avoid paying the tax.
• E) increase in the consumer surplus that is more than offset by the decrease in the producer surplus.

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Definitions:

Residual Income

This is the amount of income that exceeds the minimum rate of return.

Investment Opportunity

An option to invest capital with the expectation of achieving a financial return.

Delivery Cycle Time

The total time taken from the receipt of a customer order to the delivery of the product, indicating the efficiency of the entire supply chain process.

Residual Income

The income that remains after deducting all costs, including opportunity costs, from business operations or investments.