An excise tax levied on each unit of X good consumed. (A) would reduce consumption of X and lower total expenditure on X. (B) would rotate the budget line outward along the X axis and allow the consumer to reach a higher indifference curve. (C) would place a consumer on a lower indifference curve (D) cause the consumer to reduce consumption of tax goods and the non-tax good equally.

UoH 2020 Question 79: Budget constraint and consumer equilibrium

An excise tax levied on each unit of X good consumed ________.

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Budget constraint and consumer equilibrium has come up 99 times in 7 exams since 2004.

This question is on Transfers, subsidies and taxes on the budget, part of Budget constraint and consumer equilibrium in Microeconomics.

How cash grants, in-kind transfers, price subsidies and excise taxes change the budget set and the consumer's welfare.

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