TRADE OFF BETWEEN EQUITY AND EFFICIENCY IN TAXATION
A big issue in economics is the trade off between efficiency and equity.
An economic situation in which there is a perceived tradeoff between the equity and efficiency of a given economy. This tradeoff is commonly viewed within the context of the production possibility frontier, where any additional gains in production efficiency must be offset by a reduction in the economy's equity.
Equity is concerned with how resources are distributed throughout society.
Efficiency is concerned with the optimal production and allocation of resources given existing factors of production. There are different types of efficiency
This occurs when firms do not have incentives to cut costs, for example a monopoly which makes supernormal profits may have little incentive to get rid of surplus labour.
Therefore a firms average cost may be higher than necessary.