A government tax which has the effect of decreasing the production of some product or service...
A government tax which has the effect of decreasing
the production of some product or service may be justified
economically if:
A. The spillover costs involved in its production are very
substantial
B. The private and spillover costs of production are very
substantial.
C. substantial spillover benefits are involved in its
production.
D. all of the above.
Homework Answers
Answer
Option A
A. The spillover costs involved in its production are very substantial
A spillover cost is a negative externality, and it affects the third party to the tax is justified on the good and the tax revenue is used to cover up the loss of the third party from spillover costs.
A spillover benefits effect is justified if there is a subsidy on the production and increases the production of the good.
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