A Consumer Derives Utility for "All Other Goods," G, and Cigarettes

question 87

Multiple Choice

A consumer derives utility for "all other goods," g, and cigarettes, s. The price of "all other goods" equals $9 and the price of cigarettes is $10. Now suppose the government implements a $0.50 per-unit tax on cigarettes to encourage a decrease in smoking. How does the tax affect the marginal rate of transformation, MRT?

• A)The MRT will decrease to - .
• B)The MRT will increase to - .
• C)The MRT will increase to - + 0.05.
• D)The MRT will decrease to - - 0.05.

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