________ states that if previously existing distortions exist, a distortionary tax may actually improve efficiency.

Question

Quizplus · Accepted Answer

The principle of second best suggests that if a system cannot satisfy all the optimal conditions for efficiency (due to existing distortions), introducing another distortion (such as a tax) could potentially move the system closer to an efficient outcome by counteracting the effects of the initial distortion.

________ States That If Previously Existing Distortions Exist, a Distortionary