The equity-efficiency trade-off is best represented by ________.

Question

Quizplus · Accepted Answer

A progressive tax system aims to achieve both equity and efficiency by taxing higher income individuals at a higher rate. This increases equity by redistributing wealth from those who can afford it to those who need it more, while also maintaining efficiency by not overly burdening the economy through high tax rates. A regressive tax system, on the other hand, would prioritize efficiency over equity by taxing lower income individuals at a higher rate, which can be unfair and exacerbate income inequality. The absence of government intervention would not address either equity or efficiency concerns in the economy. It is impossible to achieve full efficiency and full consumer surplus simultaneously, as policies that prioritize one typically have implications for the other. Thus, progressive taxation strikes a balance between equity and efficiency that is most appropriate for a society seeking to improve overall welfare.

The Equity-Efficiency Trade-Off Is Best Represented by ________