The government relies on taxes to:

• A. ensure that prices remain constant over time
• B. generate revenue to fund public goods and services
• C. eliminate all market failures
• D. increase the equilibrium quantity in all markets

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the role of government taxes in microeconomics. Taxes are primarily used to generate revenue for the government, which can then be used to fund public goods and services such as infrastructure, education, and defense.
2. Step 2: Recognize that taxes are not primarily intended to keep prices constant over time. Prices are influenced by supply and demand, production costs, and other market factors, not directly by taxes.
3. Step 3: Note that while taxes can be used to address some market failures (like externalities), eliminating all market failures is not the primary or guaranteed function of taxation.
4. Step 4: Understand that taxes generally do not increase the equilibrium quantity in all markets. In fact, taxes often decrease the quantity traded by increasing the cost of goods or services.
5. Step 5: Conclude that the main purpose of taxes is to generate government revenue to fund public goods and services, which is the correct answer among the options provided.