Why might a government impose taxes on certain goods or services?

Multiple choice question for Fiscal And Monetary Policy. Select an option, then review the explanation below.

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To reduce the use of goods that generate beneficial external effectsTo limit the consumption of goods provided by the public sectorTo decrease the usage of goods that are considered socially desirableTo lower the consumption of goods causing harmful external impacts

Explanation

Governments typically use taxes to discourage the consumption of merit goods, which are goods that provide positive benefits to society but may be under-consumed if left to the free market.

Practice related questions from the same subject.

1.Which statement accurately describes a regressive tax system?
2.What is the automatic effect on the government's budget balance when the economy experiences growth?
3.If the marginal tax rate is 40% and an individual's income rises from Rs 10,000 to Rs 12,000, what will be the total tax amount paid?
4.Which of the following actions aligns with a reflationary (expansionary) fiscal policy?
5.What does over-funding mean in the context of the State Bank of Pakistan's actions?

Why might a government impose taxes on certain goods or services?

Explanation

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