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 they 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 since the effectiveness of taxes and regulations in reducing consumption depends on various factors such as the level of taxation or the strictness of regulations. Statement II is also not necessarily true as regulations may require costly compliance measures for firms. Statement III is generally true as command and control policies may have higher administrative and enforcement costs compared to market-based instruments such as taxes or tradable permits.

Which of the Following Statements Is TRUE