Taxes adversely affect the allocation of resources in society because
A)they do not always fall more heavily on the rich than on the poor.
B)the taxes collected are not enough to finance government spending.
C)not everyone pays taxes.
D)they distort prices and thus distort the decisions of households and firms.

Question

Quizplus · Accepted Answer

Taxes distort prices and thus distort the decisions of households and firms, which can lead to suboptimal allocation of resources in society. This is because taxes can alter the relative prices of goods and services, which can influence consumer choices and producer behavior. For example, a tax on cigarettes could lead to a decrease in the consumption of cigarettes, but it could also lead to an increase in the consumption of other potentially harmful products, like alcohol or sugary snacks. As a result, taxes can create unintended consequences that ultimately affect the efficiency of the economy.

Taxes Adversely Affect the Allocation of Resources in Society Because