Importance of opportunity cost to the Government
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1. The opportunity cost of the resources used to produce goods supplied
through the public sector. If these resources were not used by the
government, then they could be used by people and firms in the private
sector.
2. The second opportunity cost is the cost of resources used to collect taxes
and to enforce government rules.
3. The third opportunity cost of government is the deadweight loss of
taxation. People’s incentives tend to change with a change in taxation.
(Don’t worry about this point for the first test as Dr. Fabricant has not
covered the taxation section of chapter 4.)
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