Which of the following statements is TRUE? I. Taxes may reduce consumption by exactly the same amount as government regulations. II. Taxes typically cost more than government regulations because taxes raise prices whereas regulations simply limit quantity. III. Command-and-control policies effectively reduce consumption; but may not be the lowest cost method for doing so.
A) I and II only
B) I and III only
C) II only
D) II and III only

Question

Quizplus · Accepted Answer

Statement I is not necessarily true, as the reduction in consumption depends on the specific tax or regulation. Statement II is not true, as government regulations can also raise prices (e.g. through compliance costs). Statement III is true, as command-and-control policies may not be the most cost-effective method for reducing consumption, but they can still be effective.

Which of the Following Statements Is TRUE? I