As the tax wedge associated with a given economic activity gets smaller,we would expect
A)more of that economic activity to occur.
B)the distortions caused by taxes on that activity to be greater.
C)people to engage in less of that particular activity.
D)no change in the practice of that activity until the tax wedge ultimately disappears.

Question

Quizplus · Accepted Answer

When the tax wedge associated with a given economic activity gets smaller, it means that there is less tax burden on that activity. As a result, it becomes more profitable to engage in that activity, and this would encourage more people to participate in it. Thus, option A is the correct choice.

As the Tax Wedge Associated with a Given Economic Activity