Assume that the excise tax rate on Good Y,an inferior good,is reduced.What would be the total effect of this tax reduction on an individual's consumption?

Question

Quizplus · Accepted Answer

Since Good Y is an inferior good, it is likely that as the tax on the good is reduced, the individual's income may have increased, resulting in the individual choosing to consume more of a superior good, thus decreasing their consumption of Good Y. However, it is also possible that the reduction in the tax rate may make Good Y relatively cheaper and more accessible to the individual, leading to an increase in consumption. Therefore, the individual's consumption of Good Y can either increase or decrease.

Assume That the Excise Tax Rate on Good Y,an Inferior