Which of the following statements is correct?
A)Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a lower cost.
B)Corrective taxes distort economic incentives.
C)Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a faster rate.
D)Both a and b are correct.

Question

Quizplus · Accepted Answer

Corrective taxes are preferred over direct regulation because they create an incentive for firms to reduce their pollution levels at a lower cost. Direct regulation sets specific standards that firms must meet, which can be expensive and potentially inefficient. However, it is not correct to say that corrective taxes do not have any distortionary effects on economic incentives.

Which of the Following Statements Is Correct