Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
have no effect on production decisions
B
increase marginal costs of production
C
are paid only by businesses
D
decrease overall tax revenue
Understanding the Answer
Let's break down why this is correct
Answer
Lump-sum taxes are fixed amounts that do not change based on how much a person or business produces or earns. This means that they do not affect the decision to produce more or less because the cost remains the same no matter what. On the other hand, per-unit taxes are charged for each item produced or sold, which can influence marginal costs. For example, if a factory pays a per-unit tax on every toy it makes, this tax increases the cost of making each additional toy, which might lead the factory to produce fewer toys. So, while lump-sum taxes do not change marginal costs, per-unit taxes do influence them by making each extra unit more expensive to produce.
Detailed Explanation
Per-unit taxes raise the cost of making each item. Other options are incorrect because Some might think per-unit taxes don't change decisions; It's a common belief that only businesses pay these taxes.
Key Concepts
Lump-sum taxes
Per-unit taxes
Marginal costs
Topic
Lump-Sum Taxes Explained
Difficulty
medium level question
Cognitive Level
understand
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