Refer to the graph. If the government wishes to collect tax revenues equal to R $R _ { 2 }$ , supply-side
Economists would strongly advise the government to set tax rates at
A) $T _ { 2 } \text { or } T _ { 3 }$
B) $T _ { 2 } \text { only. }$
C) $T _ { 4 } \text { only. }$
D) $T _ { 2 } \text { or } T _ { 4 }$

Question

Refer to the graph. If the government wishes to collect tax revenues equal to R $R _ { 2 }$ , supply-side
Economists would strongly advise the government to set tax rates at
A) $T _ { 2 } \text { or } T _ { 3 }$ 
B) $T _ { 2 } \text { only. }$ 
C) $T _ { 4 } \text { only. }$ 
D) $T _ { 2 } \text { or } T _ { 4 }$

Quizplus · Accepted Answer

Supply-side economists believe that lower tax rates can stimulate economic growth, leading to an increase in tax revenues due to a larger tax base. In this case, if the government wishes to collect tax revenues equal to R2, setting tax rates at T2 would encourage producers to produce more, leading to an increase in quantity supplied and therefore an increase in tax revenues. Setting tax rates at T3 or T4 may have the opposite effect, discouraging producers from producing as much and leading to lower tax revenues. Therefore, the best choice would be to set tax rates at T2 only.

Refer to the Graph R2R _ { 2 }R2​ , Supply-Side Economists Would Strongly Advise the Government to Set

Refer to the Graph $R _ { 2 }$ , Supply-Side
Economists Would Strongly Advise the Government to Set