Taxes are likely to affect the incentives that persons have to use their own resources in the most productive way. Suppose that the taxes used to finance G₁units of government goods and services could purchase X₁units of private goods and services. Assume that more than X₁units of private goods and services could be produced if taxes did not impair incentives to produce. Use the production possibility curve to illustrate the effect of taxes on the output mix in the economy. Show the loss in private output from taxes on your graph. Show how an improvement in the technology of producing government goods and services will affect the production possibility curve.

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The Answer of Taxes are likely to affect the incentives that persons have to use their own resources in the most productive way. Suppose that the taxes used to finance G₁units of government goods and services could purchase X₁units of private goods and services. Assume that more than X₁units of private goods and services could be produced if taxes did not impair incentives to produce. Use the production possibility curve to illustrate the effect of taxes on the output mix in the economy. Show the loss in private output from taxes on your graph. Show how an improvement in the technology of producing government goods and services will affect the production possibility curve.

Taxes Are Likely to Affect the Incentives That Persons Have