If it is regarded as socially desirable for reasons of equity to provide loss- making rural bus services, what is the least distortionary solution to this problem?
A) Subsidise the rural services from increased income tax.
B) Subsidise the rural services from increased taxes on the motorist.
C) Keep urban fares the same and pay for the rural services from reduced bus company profits.
D) Raise the fares on the urban bus services to cover the losses of the rural services so as to retain the same overall level of profit as before.
E) Subsidise the rural services from increased local taxes in rural areas.
Correct Answer:
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