Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
They distort individual behavior and consumption choices.
B
They are based on an individual's income level.
C
They do not change with the level of output or income.
D
They are progressive in nature.
Understanding the Answer
Let's break down why this is correct
Answer
A characteristic of lump-sum taxes that contributes to economic efficiency is that they do not change people's behavior when making economic decisions. Since everyone pays the same fixed amount regardless of their income or spending, individuals do not feel discouraged from working, saving, or investing. This means that a lump-sum tax does not create extra costs or distortions in the economy, allowing resources to be used more effectively. For example, if a person is taxed a flat fee of $100, they will still choose to work the same number of hours and make similar spending decisions as they would without that tax. This stability promotes a more predictable and productive economic environment.
Detailed Explanation
Lump-sum taxes stay the same no matter how much money you make or how much you produce. Other options are incorrect because Some might think lump-sum taxes change how people behave; It's a common belief that these taxes depend on how much money someone earns.
Key Concepts
economic efficiency
Topic
Lump-Sum Taxes Explained
Difficulty
easy level question
Cognitive Level
understand
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