A regional government has received extra tax revenue after economic growth. It is considering whether to decrease business taxes or increase spending on flo...

Assessment: Economics 9214 | Paper 2 Mock 01 | Written Paper 2 Subject: Economics - 9214

Question 1 Report

A regional government has received extra tax revenue after economic growth. It is considering whether to decrease business taxes or increase spending on flood barriers before the next rainy season.

(a) What does choosing flood barriers reveal about resource allocation? [1]

Answer Details

(a) Choosing to spend the extra tax revenue on flood barriers shows that resources are limited and therefore choices have an opportunity cost. If the revenue is allocated to flood barriers, it cannot also be used to decrease business taxes. [1]

This is the central resource-allocation problem: scarce funds must be directed to one use instead of another.

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