Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is the primary goal of taxing certain products higher than others?

1. To raise government revenues

2. To encourage consumer spending

3. To decrease their use

4. To stabilize the economy

The correct answer is: To decrease their use

The primary goal of taxing certain products higher than others is often to decrease their use. This is particularly relevant in the case of goods that can have negative effects on public health or the environment, such as tobacco, alcohol, and carbon emissions. By imposing higher taxes on these products, governments aim to deter consumption, thus helping to reduce harmful behaviors and their associated societal costs. When higher taxes are implemented on specific products, consumers may think twice before making a purchase due to the increased financial burden. This behavior aligns with the principle of using fiscal policy to promote public welfare and enhance overall societal health. In contrast, while raising government revenues is a notable outcome of such taxation, the primary intention behind these specific taxes tends to focus more on discouraging the consumption of particular goods, rather than merely generating income for the government. Similarly, while these taxes may indirectly influence consumer spending or contribute to economic stabilization, these are not the primary motivations for their implementation. The primary focus remains on reducing consumption of products that may be harmful or undesirable.