Compared to an equal-cost cash grant,an excise subsidy on clothing results in the purchase of:
A)more clothing and more of other goods.
B)less clothing and more of other goods.
C)more clothing and less of other goods.
D)less clothing and less of other goods.

Question

Quizplus · Accepted Answer

An excise subsidy on clothing would decrease the price of clothing, making it more affordable and likely to be purchased in larger quantities. This would result in more clothing being purchased, but because the subsidy applies only to clothing and not other goods, consumers are less likely to spend the saved money on other goods. Therefore, the quantity of other goods purchased is likely to decrease, resulting in more clothing and less of other goods being purchased.

Compared to an Equal-Cost Cash Grant,an Excise Subsidy on Clothing