Question

Education is typically viewed as an external cost because society deems that, left alone, market forces would not produce enough.

true or false

The more competitive are markets, the higher the consumer surplus and decreased deadweight loss.

true or false

Progressive income taxes are more aimed at stabilizing the level of economic activity than at redistributing incomes between people.

true or false

Answer 1

Ans) 1) False. Education is considered as external benefit.

Positive externality is when the bystander bears the benefit of any activity. Eg- education. When person consumes education, it not only benefits that person but also the society. And since private benefit is less than social benefit in positive externality, goods are underconsumed in a market without government intervention. To internalise this externality, government gives subsidy equal to external benefit.

External benefit = social benefit - private benefit.

2) True. Increased competition increases consumer surplus as it tends to lower the market prices. Further, increased competition reduces deadweightloss due to more efficiency.

3) False. Progressive income tax is when low income people have to pay less tax and more income people have to pay higher taxes. It is aimed to reduce income inequality.