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Test: Principle of Maximum Social Advantage - B Com MCQ


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10 Questions MCQ Test Public Finance - Test: Principle of Maximum Social Advantage

Test: Principle of Maximum Social Advantage for B Com 2024 is part of Public Finance preparation. The Test: Principle of Maximum Social Advantage questions and answers have been prepared according to the B Com exam syllabus.The Test: Principle of Maximum Social Advantage MCQs are made for B Com 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Principle of Maximum Social Advantage below.
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Test: Principle of Maximum Social Advantage - Question 1
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What does the Principle of Maximum Social Advantage refer to in the context of public finance?

Detailed Solution for Test: Principle of Maximum Social Advantage - Question 1
The Principle of Maximum Social Advantage states that the goal of fiscal operations in a modern welfare state is to achieve the highest possible economic welfare for the people. This principle guides the government in making decisions about revenue collection through taxation and the allocation of public expenditures. It aims to maximize the overall well-being of the society by balancing the benefits of public expenditure against the sacrifices involved in taxation. In other words, the state should strive to achieve a balance between social benefits gained from public spending and the social sacrifice of taxes, leading to the overall betterment of society.
Test: Principle of Maximum Social Advantage - Question 2
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According to the principle, when is the maximum social advantage achieved in fiscal operations?

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The maximum social advantage is achieved when the marginal social benefit (MSB) of public expenditure equals the marginal social sacrifice (MSS) of taxation. In other words, the point at which the benefits derived from additional public spending are equal to the sacrifices made through increased taxation is the equilibrium point of maximum social advantage. This point ensures that society gains the most benefit from its fiscal operations while minimizing the overall loss.
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Test: Principle of Maximum Social Advantage - Question 3
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What is the relationship between the marginal social sacrifice (MSS) and taxation?

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The marginal social sacrifice (MSS) is the disutility or dissatisfaction experienced by society due to the payment of taxes. It increases as taxation increases, meaning that each additional unit of taxation leads to a greater sacrifice or burden on the community. This relationship highlights the fact that as the government collects more taxes, the social sacrifice also escalates.
Test: Principle of Maximum Social Advantage - Question 4
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What is the social benefit of public expenditure, as per the principle?
Detailed Solution for Test: Principle of Maximum Social Advantage - Question 4
The social benefit of public expenditure refers to the utility or satisfaction created in society as a result of government spending. When the state spends money on various activities, it generates benefits that lead to improvements in different sectors of the society. This might include investments in education, healthcare, infrastructure, and other areas that directly contribute to the well-being of citizens.
Test: Principle of Maximum Social Advantage - Question 5
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What is the key principle underlying the allocation of resources through fiscal operations?
Detailed Solution for Test: Principle of Maximum Social Advantage - Question 5
The key principle underlying the allocation of resources through fiscal operations is the "Principle of Maximum Social Advantage." This principle guides the government in making decisions about revenue collection and expenditure allocation with the aim of achieving the highest possible economic welfare for the people. It emphasizes the balance between social benefits gained from public spending and the social sacrifice of taxation.
Test: Principle of Maximum Social Advantage - Question 6
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In the context of the Principle of Maximum Social Advantage, how are marginal social benefits (MSB) and marginal social sacrifices (MSS) related?
Detailed Solution for Test: Principle of Maximum Social Advantage - Question 6
Marginal social benefits (MSB) and marginal social sacrifices (MSS) are inversely related in the context of the Principle of Maximum Social Advantage. As public expenditure increases, the additional benefits gained from each unit of spending diminish, leading to a downward-sloping MSB curve. Conversely, as taxation increases, the additional burden or sacrifice experienced by the community for each unit of taxation rises, resulting in an upward-sloping MSS curve.
Test: Principle of Maximum Social Advantage - Question 7
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What does the equilibrium point of maximum social advantage indicate?
Detailed Solution for Test: Principle of Maximum Social Advantage - Question 7
The equilibrium point of maximum social advantage is the point at which the marginal social benefit (MSB) of public expenditure equals the marginal social sacrifice (MSS) of taxation. At this point, the government has achieved an optimal balance between the benefits gained from public spending and the sacrifices incurred through taxation. This equilibrium ensures that society gains the most benefit from its fiscal operations without excessive social sacrifice.
Test: Principle of Maximum Social Advantage - Question 8
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How does the marginal social benefit curve (MSB) behave in relation to public expenditure?
Detailed Solution for Test: Principle of Maximum Social Advantage - Question 8
The marginal social benefit curve (MSB) is a downward-sloping curve, implying that the social benefits per unit of public expenditure diminish as public spending increases. In other words, as the government invests more money in various areas, the additional benefits gained from each unit of spending become smaller. This behavior is reflective of the Principle of Diminishing Marginal Social Benefits.
Test: Principle of Maximum Social Advantage - Question 9
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How is the point of maximum social advantage illustrated in the diagram?
Detailed Solution for Test: Principle of Maximum Social Advantage - Question 9
In the diagram, the point of maximum social advantage is illustrated where the marginal social benefit (MSB) curve intersects the marginal social sacrifice (MSS) curve. This intersection represents the equilibrium point at which the benefits gained from additional public spending are equal to the sacrifices made through increased taxation, achieving the highest economic welfare.
Test: Principle of Maximum Social Advantage - Question 10
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What is the significance of the shaded area APB in the diagram?
Detailed Solution for Test: Principle of Maximum Social Advantage - Question 10
The shaded area APB in the diagram represents the quantum of maximum social advantage. It signifies the range where the marginal social benefit (MSB) of public expenditure is greater than the marginal social sacrifice (MSS) of taxation, leading to a net social gain. This area illustrates the zone in which the government's fiscal operations result in the overall betterment of society, aligning with the Principle of Maximum Social Advantage.
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