Which of the following illustrates the principle of second best?
A. A tax imposed on land, because this tax distorts economic decisions less than taxes on other factors of production.
B. 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.
C. The government decides to impose taxes on all grains, rather than imposing a tax only on wheat.
D. The government imposes taxes on gasoline, and the tax revenue collected is used to pay for road repair.
Answer: B
You might also like to view...
Firms are "price makers" if they
A) have sufficient market power to set their product price. B) make the market price their product price. C) make their product price competitive. D) None of the above
"A perfect competitor should maximize total revenues." Do you agree or disagree? Explain
What will be an ideal response?