Question 1

Which of the following is true of an excise subsidy?

Accepted Answer

An excise subsidy increases the consumption of the subsidized good more than a cash transfer of equal cost because it lowers the price of the subsidized good relative to other goods, making consumers more likely to purchase more of the subsidized good. This is due to the fact that the subsidy effectively reduces the price of the good, encouraging consumers to buy more of it compared to when they receive a cash transfer, which they could spend on any goods, not necessarily increasing consumption of the subsidized good to the same extent.

Question 2

An excise subsidy given on clothing will encourage consumers to purchase:

Accepted Answer

An excise subsidy is a decrease in the cost of production of a product which eventually leads to a decrease in the selling price. When this happens with clothing, the consumers are likely to purchase more of it due to the substitution effect. The substitution effect suggests that due to a decrease in the price of clothing, consumers will switch from other goods to clothing, resulting in an increase in its demand. Therefore, a lower price of clothing will encourage consumers to purchase more of it, and this result will be the opposite of the income effect.

Question 3

Which of the following is a consequence of subsidizing consumers using a per-unit excise subsidy for the purchase of some good or service as opposed to a lump-sum payment of an equal amount?

Accepted Answer

Subsidizing consumers using a per-unit excise subsidy may not necessarily result in consumers being better off according to their own preferences. This is because the subsidy may encourage consumers to purchase more of the subsidized good, even if it is not something they particularly want or need. A lump-sum payment, on the other hand, would not influence consumers' purchasing decisions in this way.

Question 4

An excise subsidy given on each unit of X consumed will:

Accepted Answer

An excise subsidy on each unit of X consumed effectively lowers the price of X relative to other goods, making it more affordable. This allows consumers to achieve a higher level of satisfaction or utility, represented by reaching a higher indifference curve, because they can now consume more of X for the same amount of money or achieve the same consumption level for less money.

Question 5

The U.S.government in effect subsidizes health care of workers by:

Accepted Answer

The U.S. government does not tax health care benefits, which effectively subsidizes the cost of health care for workers. This means that employees can receive health care benefits from their employer without having to pay taxes on that benefit, which reduces the overall cost of health care for workers.

Question 6

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.
In Figure 5-1,the total cost incurred by the government on the lump-sum transfer is given by _____.

Accepted Answer

The answer of Figure 5-1 shows the preferences of a...

Question 7

In an attempt to encourage the use of solar energy,the government pays a part of the price of solar panels to the producer and allows consumers to buy as many panels as they wish at the subsidized price.This is an example of a(n)_____.

Accepted Answer

An excise subsidy is a payment by the government to reduce the cost of a product or service, in this case, solar panels, to encourage production and consumption. This subsidy is not limited to a fixed quantity nor is it a lump-sum transfer to individuals or a voucher program; it directly reduces the production cost, making the product cheaper for consumers.

Question 8

Use the following figure to answer the question: Figure 5-2 :shows the quantity demanded of a good at various prices. -Refer to Figure 5-2.The deadweight loss of an excise subsidy that lowers the price from P₁ to P₂ is area _____.

Accepted Answer

The answer of Use the following figure to answer the...

Question 9

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.
In Figure 5-1,the total outlay on food before the excise subsidy is given by _____.

Accepted Answer

The answer of Figure 5-1 shows the preferences of a...

Question 10

The welfare effect of an excise subsidy indicates that:

Accepted Answer

The welfare effect of an excise subsidy indicates that the consumer is better off than without the subsidy. This is because the excise subsidy reduces the price of goods for the consumer, leading to an increase in their purchasing power and higher welfare.

Question 11

Use the following figure to answer the question: Figure 5-2 :shows the quantity demanded of a good at various prices. -Based on Figure 5-2,the welfare cost of an excise tax (that raises price from P₂ to P₁)is the area _____.

Accepted Answer

The welfare cost of an excise tax is represented by the deadweight loss, which is the area of the triangle formed by the reduction in quantity traded due to the tax. This is typically shown as the area between the supply and demand curves, above the original price and below the new price, which is area ADC.

Question 12

Being a member of the government-sponsored MediSave scheme entitles employees to a lump-sum payment in cash towards medical expenses.This scheme would:

Accepted Answer

By providing employees with a lump-sum payment towards medical expenses, the MediSave scheme would make workers better off by reducing their out-of-pocket healthcare expenses. This would therefore increase their overall welfare. It may not directly impact employment or wages.

Question 13

Comparing the original budget line with the budget line for an excise subsidy and a cash grant:

Accepted Answer

The budget line for a cash grant is parallel to the original budget line because a cash grant increases the consumer's income without changing the relative prices of goods, thus shifting the budget line outward while maintaining the same slope.

Question 14

Which of the following is true of an excise subsidy?

Accepted Answer

An excise subsidy indeed has both an income and a substitution effect. The subsidy effectively lowers the price of the subsidized good, making it more attractive relative to other goods (substitution effect), and it also increases the consumer's purchasing power as if their income has increased because they can now buy more for the same amount of money (income effect). This combination causes the consumption of the subsidized good to rise.

Question 15

Unlike an equivalent-sized cash transfer,an excise subsidy on good X:

Accepted Answer

An excise subsidy on good X will lower the price of the good and therefore increase its demand. This will result in a substitution effect as consumers switch from other goods to good X, but it will not necessarily leave the consumer better off since the subsidy is funded by taxes. Additionally, it will not have an income effect like a cash transfer would, and it may or may not increase consumption of composite goods depending on the specific market and consumer preferences.

Question 16

Given a choice between an equal-cost cash grant and an excise subsidy,a consumer will:

Accepted Answer

The answer of Given a choice between an equal-cost cash...

Question 17

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.
In Figure 5-1,the total outlay on other goods before the excise subsidy is given by _____.

Accepted Answer

The answer of Figure 5-1 shows the preferences of a...

Question 18

If an equal-cost lump-sum transfer were substituted for a per unit excise subsidy on good X:

Accepted Answer

Under a per unit excise subsidy, the consumer would face a lower price for good X and therefore would consume more. However, this subsidy distorts the market and creates deadweight loss. On the other hand, an equal-cost lump-sum transfer does not affect market prices and does not create any deadweight loss. Therefore, if the lump-sum transfer is substituted for the excise subsidy, consumption of good X would be higher and the consumer would be on a higher indifference curve, without any additional cost.

Question 19

Compared to an equal-cost cash grant,an excise subsidy on clothing results in the purchase of:

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.

Question 20

The effect of substituting an equal-cost lump-sum grant for an excise subsidy is to:

Accepted Answer

Substituting an equal-cost lump-sum grant for an excise subsidy decreases the consumption of the subsidized good because the direct financial incentive to purchase that good is removed. It increases the consumption of other goods because consumers now have more general purchasing power that they can allocate according to their preferences.

Quiz 5: Using Consumer Choice Theory

Which of the following is true of an excise subsidy?

An excise subsidy given on clothing will encourage consumers to purchase:

Which of the following is a consequence of subsidizing consumers using a per-unit excise subsidy for the purchase of some good or service as opposed to a lump-sum payment of an equal amount?

An excise subsidy given on each unit of X consumed will:

The U.S.government in effect subsidizes health care of workers by:

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. In Figure 5-1,the total cost incurred by the government on the lump-sum transfer is given by _____.

In an attempt to encourage the use of solar energy,the government pays a part of the price of solar panels to the producer and allows consumers to buy as many panels as they wish at the subsidized price.This is an example of a(n) _____.

Use the following figure to answer the question: Figure 5-2 :shows the quantity demanded of a good at various prices. -Refer to Figure 5-2.The deadweight loss of an excise subsidy that lowers the price from P₁ to P₂ is area _____.

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. In Figure 5-1,the total outlay on food before the excise subsidy is given by _____.

The welfare effect of an excise subsidy indicates that:

Use the following figure to answer the question: Figure 5-2 :shows the quantity demanded of a good at various prices. -Based on Figure 5-2,the welfare cost of an excise tax (that raises price from P₂ to P₁) is the area _____.

Being a member of the government-sponsored MediSave scheme entitles employees to a lump-sum payment in cash towards medical expenses.This scheme would:

Comparing the original budget line with the budget line for an excise subsidy and a cash grant:

Which of the following is true of an excise subsidy?

Unlike an equivalent-sized cash transfer,an excise subsidy on good X:

Given a choice between an equal-cost cash grant and an excise subsidy,a consumer will:

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. In Figure 5-1,the total outlay on other goods before the excise subsidy is given by _____.

If an equal-cost lump-sum transfer were substituted for a per unit excise subsidy on good X:

Compared to an equal-cost cash grant,an excise subsidy on clothing results in the purchase of:

The effect of substituting an equal-cost lump-sum grant for an excise subsidy is to:

Quiz 5: Using Consumer Choice Theory

Which of the following is true of an excise subsidy?

An excise subsidy given on clothing will encourage consumers to purchase:

Which of the following is a consequence of subsidizing consumers using a per-unit excise subsidy for the purchase of some good or service as opposed to a lump-sum payment of an equal amount?

An excise subsidy given on each unit of X consumed will:

The U.S.government in effect subsidizes health care of workers by:

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. In Figure 5-1,the total cost incurred by the government on the lump-sum transfer is given by _____.

In an attempt to encourage the use of solar energy,the government pays a part of the price of solar panels to the producer and allows consumers to buy as many panels as they wish at the subsidized price.This is an example of a(n) _____.

Use the following figure to answer the question: Figure 5-2 :shows the quantity demanded of a good at various prices. -Refer to Figure 5-2.The deadweight loss of an excise subsidy that lowers the price from P1 to P2 is area _____.

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. In Figure 5-1,the total outlay on food before the excise subsidy is given by _____.

The welfare effect of an excise subsidy indicates that:

Use the following figure to answer the question: Figure 5-2 :shows the quantity demanded of a good at various prices. -Based on Figure 5-2,the welfare cost of an excise tax (that raises price from P2 to P1) is the area _____.

Being a member of the government-sponsored MediSave scheme entitles employees to a lump-sum payment in cash towards medical expenses.This scheme would:

Comparing the original budget line with the budget line for an excise subsidy and a cash grant:

Which of the following is true of an excise subsidy?

Unlike an equivalent-sized cash transfer,an excise subsidy on good X:

Given a choice between an equal-cost cash grant and an excise subsidy,a consumer will:

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. In Figure 5-1,the total outlay on other goods before the excise subsidy is given by _____.

If an equal-cost lump-sum transfer were substituted for a per unit excise subsidy on good X:

Compared to an equal-cost cash grant,an excise subsidy on clothing results in the purchase of:

The effect of substituting an equal-cost lump-sum grant for an excise subsidy is to:

Use the following figure to answer the question: Figure 5-2 :shows the quantity demanded of a good at various prices. -Refer to Figure 5-2.The deadweight loss of an excise subsidy that lowers the price from P₁ to P₂ is area _____.

Use the following figure to answer the question: Figure 5-2 :shows the quantity demanded of a good at various prices. -Based on Figure 5-2,the welfare cost of an excise tax (that raises price from P₂ to P₁) is the area _____.