PrepTest 104, Section 4, Question 1

What we’re looking for

Working the answers

• A

  This raises a tax because the product causes health problems, so the beginning looks promising. But look at what the government is trying to accomplish: collect money to cover the resulting health costs. Paying for the damage and discouraging people from causing it are different goals. The answer doesn't say that the tax is set to discourage continued use of sugar. It therefore doesn't demonstrate the particular policy the politician recommends.

• B

  The government raises a tax on a harmful substance, but demand will not change. People will keep buying it. That defeats the point of this principle: the tax is supposed to discourage continued use. A tax that leaves demand unaffected doesn't fit just because it collects money from a harmful product.

• C
  Correct

  The pesticide contains a substance harmful to people, and the government raises its tax to encourage people to buy pesticides without that substance. That is the behavior change we wanted. People can still buy pesticides; the tax steers them away from the harmful compound. We don't need every person to stop using it. The principle calls for discouraging continued use, and giving buyers a reason to choose an alternative does that.

• D

  This leaves a tax alone to protect tourism. The principle gives us a reason to tax harmful substances: discourage their use. It doesn't give us a tourism-based exception or a reason to keep taxes down. Whether protecting the tourist industry would be a good policy is a separate question.

• E

  This lowers a tax to encourage the development of less harmful ways to use a substance. That could be an environmental policy, but it is a different policy. The politician proposes using the tax itself to discourage continued use of the harmful substance. Encouraging research into cleaner uses doesn't establish that connection, and lowering the tax doesn't supply the disincentive described in the principle.