If the Federal government enacts a new excise tax of $1.50 per case of soda, which of the following is most likely to occur?
A) Consumers of soda will pay a higher price and buy a larger quantity.
B) Consumers of soda will pay a higher price, which will increase the profits of soda companies, inducing them to sell a larger quantity.
C) Consumers of soda will pay a higher price and buy a smaller quantity.
D) Consumers of soda will buy less bottled water.

Question

Quizplus · Accepted Answer

An excise tax increases the cost of production, leading to higher prices for consumers and typically resulting in a decrease in the quantity demanded.

If the Federal Government Enacts a New Excise Tax of $1.50