Figure 5-1 shows the preferences of a consumer for food and other goods.He is initially in equilibrium at point A where the budget line MN is tangent to the indifference curve.
Figure 5-1
-In Figure 5-1,the total outlays on other goods after the excise subsidy is given by _____.
A)0M
B)0N
C)0E
D)0G

Question

Figure 5-1 shows the preferences of a consumer for food and other goods.He is initially in equilibrium at point A where the budget line MN is tangent to the indifference curve.
Figure 5-1 
-In Figure 5-1,the total outlays on other goods after the excise subsidy is given by _____.
A)0M 
B)0N 
C)0E 
D)0G

Quizplus · Accepted Answer

The excise subsidy shifts the supply curve to the right, from S to S'. The new equilibrium is at point E, where the quantity supplied equals the quantity demanded. The total outlays on other goods after the excise subsidy is given by the area 0E, which is the area below the demand curve and above the new supply curve.

Figure 5-1 Shows the Preferences of a Consumer for Food