To Simplify Our Consumption Models, Suppose U

question 68

Multiple Choice

To simplify our consumption models, suppose U.S. consumers only purchase food and all other goods where food is plotted along the horizontal axis of the indifference map. Also, suppose that all states initially impose state sales taxes on all goods (including food) , but then the states exempt food from the state sales tax. How does this tax policy change alter the consumer's budget line?

• A) Makes the budget line steeper
• B) Makes the budget line flatter
• C) Parallel rightward shift
• D) Parallel leftward shift
• E) none of the above

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Definitions:

Differentiated Goods

Products that are distinguished from others on the basis of quality, brand, design, or some other characteristic, making them unique from competitors’ offerings.

Product Standardization

The process of adopting uniform characteristics for a product or its components, often to ensure consistency and compatibility.

Peak Efficiency

The state or condition in which a system or process operates at its maximum potential or effectiveness, utilizing resources optimally without waste.

Monopolistic Competitor

A market structure where many companies sell products that are similar but not identical, allowing for significant control over pricing and competition on factors other than price, such as quality and branding.