Answer-Assertion (A): The point of Maximum Social Advantage is achieved when the government increases its b...

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Understanding the Assertion A  The Principle of Maximum Social Advantage, propounded by Hugh Dalton , states that the best system of public finance is one that secures the maximum social advantage from its fiscal operations.    Marginal Social Sacrifice MSS When the government imposes a tax, every unit of money taken from a citizen results in a sacrifice or loss of utility.   Marginal Social Benefit MSB When the government spends that money, every unit of expenditure provides a benefit or utility to society.   Equilibrium The government should continue its fiscal operations as long as MSB  MSS. The optimum or maximum advantage is reached exactly at the point where MSB  MSS. Beyond this point, the cost to society sacrifice outweighs the gain benefit.    Understanding the Reason R  The reason explains the behavior of the curves involved in this principle    Decreasing MSB As the government spends more on public services, the utility of each additional rupee spent declines Law of Diminishing Marginal Utility. For example, the first hospital built provides massive utility the 100th hospital provides relatively less.   Increasing MSS As people pay more taxes, their remaining disposable income decreases. Since money is a scarce resource, the marginal utility of the remaining money increases. Therefore, giving up each additional rupee feels like a progressively larger sacrifice.   Because the MSB curve is downward-sloping diminishing benefit and the MSS curve is upward-sloping increasing sacrifice, they must eventually intersect. This intersection is the only point where the net social advantage is maximized. Thus, the behavioral laws mentioned in the Reason R are exactly why the equilibrium condition in the Assertion A exists.

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