To be efficient, the revenue from taxation must provide goods that have benefits that ________ the deadweight loss caused by the taxation itself.
A) maximize
B) exceed
C) eliminate
D) minimize

Question

Quizplus · Accepted Answer

Deadweight loss is the loss of social surplus due to market inefficiencies caused by taxes. To maximize efficiency, the benefits provided by the goods produced by the revenue from taxes must exceed the deadweight loss caused by the taxation. If the benefits do not exceed the deadweight loss, there will still be a net loss of social surplus, which is not efficient. Therefore, choice B "exceed" is the best choice.

To Be Efficient, the Revenue from Taxation Must Provide Goods