Which one of the following statements about illegal goods is true?
A)Taxes are more effective in changing preferences than prohibition.
B)Prohibition is more effective in generating revenue than an equivalent tax.
C)Taxes and penalties cannot be set to yield equivalent outcomes.
D)Taxes generate revenues while prohibition sends a signal that might influence preferences.
E)Taxes and prohibition eliminate the market for illegal goods.

Question

Quizplus · Accepted Answer

Taxes can generate revenue while prohibition can signal social disapproval and influence preferences. Both measures cannot completely eliminate the market for illegal goods, but taxes may be more effective in regulating the market and reducing harmful effects. Penalties can also act as a deterrent, but setting them too high may lead to unintended consequences such as corruption or violence. Therefore, a combination of taxes, penalties, and education may be the most effective strategy to address the issue of illegal goods.

Which One of the Following Statements About Illegal Goods Is