Topic 1: Introduction

Question 1

Equity and efficiency tradeoff

Answer 1

Often the efficient policy is highly inequitable, while an equitable policy can lead to significant distortions and disincentives

Question 2

Mechanical/direct effect of taxation

Answer 2

the effects of government interventions that would be predicted if individuals did not change their behaviour in response to the interventions

Question 3

Behavioural/indirect effect of taxation

Answer 3

the effects of government interventions that arise only because individuals change their behaviour in response to the interventions

Question 4

Social Welfare Function (SWF)

Answer 4

A function that combines the utility functions of all individuals into an overall social utility function