Why is a tax inefficient? What will be an ideal ...

[beccaep]

Why is a tax inefficient?
 
  What will be an ideal response?

Question 2

Using present value to calculate stock prices is ________ than using present value to calculate bond prices because ________.
 
  A) less accurate; coupon payments for bonds are known with certainty but dividend payments for stocks are not
  B) more accurate; coupon payments for bonds are known with certainty but dividend payments for stocks are not
  C) less accurate; dividend payments for stocks are known with certainty but coupon payments for bonds are not
  D) more accurate; dividend payments for stocks are known with certainty but coupon payments for bonds are not

[makaylafy]

Answer to Question 1

The imposition of a tax on a market causes a wedge to be driven between the price received by the seller and the price paid by the buyer. This causes the marginal social benefit from the last unit sold to be higher than its marginal social cost, and the market will under-produce the good or service being taxed. If more of the good or service were produced, the marginal social benefit gained would be greater than the marginal social cost incurred, and the net benefit to society would increase.

Answer to Question 2

A

[beccaep]

YES! Correct, THANKS for helping me on my review

[lindahyatt42]

TYSM