Comment on the following statement: Taxes on ...

[mmm]

Comment on the following statement: Taxes on externality-producing activities are generally used to eliminate externalities.
 
  What will be an ideal response?

Question 2

Which of the following is included in gross domestic product for an economy in a given year?
 
  A) the value of used goods sold in that year
  B) the value of final goods produced in that year
  C) the value of intermediate goods produced in that year
  D) All of the above would be included in gross domestic product for an economy in a given year.

[Ahnyah]

Answer to Question 1

The statement is false. Taxes are used to force decision makers to consider the full costs of their actions. This does not mean that the decision maker will decide to stop the externality-producing activity but he will generally scale back the activity.

Answer to Question 2

B