Question

True or false: the government could achieve the efficient outcome by giving out fire extinguishers for free using tax revenue.

Answer 1

The government providing fire extinguishers using tax revenue could lead to an efficient outcome by ensuring public safety. The colonists' issue was with the application of tax revenues, not taxation itself. Taxing domestic consumption of resources necessary for national security can be more efficient than import barriers.

Step-by-step explanation:

The statement that the government could achieve the efficient outcome by giving out fire extinguishers for free using tax revenue is true. Public goods like fire extinguishers, when provided by the government, can help in preventing larger societal costs associated with fires, which often extend beyond individual properties. By using tax revenue to supply fire extinguishers, the government ensures that everyone has access to this essential safety tool, thereby enhancing overall public welfare and safety.

Similarly, the question regarding the colonists is also true. The colonists did not object to taxation per se, but rather to the way in which the British government was spending the taxes collected from them without giving them any say in the decision-making process, known as 'Taxation without representation'.

The more efficient approach of taxing domestic consumption of resources critical for national security, compared to erecting trade barriers, lies in the economics of taxation versus trade restrictions. Taxes can be adjusted to reflect the scarcity and importance of such resources, while barriers to imports tend to create inefficiencies in the market such as higher prices, retaliations, and possible shortages.

Answer 2

Yes, this is effecient outcome. Effecient outcome means No individual can be made better off without making someone else worse off. In this scenario consumers are getting a free fire extinguisher which makes their lives safer, but someone is having to pay for it, meaning there is someone who is getting the short end of the stick. Maybe it is the makers of the extinguishers having to sell them below cost, or tax payers having to pay more in taxes to cover the costs.