If the Federal government enacts a new excise tax of $1.50 per six-pack of beer. Which of the following is most likely to occur?
A) Consumers of beer will pay a higher price and buy a larger quantity.
B) Consumers of beer will pay a higher price, which will increase the profits of beer companies, inducing them to sell a larger quantity.
C) Consumers of beer will pay a higher price and buy a smaller quantity.
D) Consumers of beer will buy less wine from France.

Question

Quizplus · Accepted Answer

The new excise tax will increase the cost of producing and selling beer, leading to an increase in the price of beer for consumers. This, in turn, will lead to a decrease in the quantity of beer demanded, as some consumers will switch to other alcoholic or non-alcoholic beverages or reduce their consumption of beer altogether. Option A is incorrect as consumers would not buy a larger quantity when they have to pay a higher price. Option B is also incorrect as only the tax revenue and not profits from beer sales would increase, and it is unlikely to induce beer companies to sell a larger quantity of beer. Option D is unrelated and incorrect.

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