Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Taxation is to deadweight loss
B
Subsidies are to market surplus
C
Price controls are to market fluctuations
D
Trade barriers are to international relations
Understanding the Answer
Let's break down why this is correct
Answer
Taxation aimed at correcting negative externalities helps improve market efficiency by making sure that the costs of harmful activities are reflected in the prices of goods and services. For example, if a factory pollutes the air, a tax on its emissions encourages the factory to reduce pollution, leading to a healthier environment and better resource allocation. In this analogy, just as taxation corrects inefficiencies caused by negative externalities, government regulation aims to ensure economic stability by setting rules that prevent market failures. Therefore, option C could be "government intervention," as it plays a similar role in managing and balancing the economy. Both taxation and regulation are tools used to guide markets toward more favorable outcomes for society.
Detailed Explanation
When taxes are used to fix problems like pollution, they can create deadweight loss. Other options are incorrect because Some think subsidies always help markets; Price controls are often seen as a way to stabilize prices.
Key Concepts
Taxation and Deadweight Loss
Market Efficiency
Government Intervention
Topic
Taxation and Deadweight Loss
Difficulty
easy level question
Cognitive Level
understand
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