Multiple Choice
Which of the following best describes how the demand curve for a public good is determined?
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8. The Types of Goods
Public Goods: Demand Curve and Optimal Quantity
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Which term best describes money the federal government gives a state for a certain purpose, often related to the provision of public goods?
A
Excise tax
B
Tariff
C
Grant-in-aid
D
Tax subsidy
Verified step by step guidance1
Understand the context: The problem asks for a term that describes money given by the federal government to a state for a specific purpose, often related to public goods.
Recall definitions of each option: An excise tax is a tax on specific goods; a tariff is a tax on imports; a tax subsidy is a reduction in taxes to encourage certain activities.
Identify the term that involves federal funds given to states for designated purposes, which is typically called a 'grant-in-aid'.
Recognize that grants-in-aid are used by the federal government to support state programs, especially those providing public goods or services.
Conclude that the best term matching the description is 'grant-in-aid' because it specifically refers to federal money allocated to states for certain purposes.
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