The Combination of an Excise Tax and a Tax Rebate

question 25

Multiple Choice

The combination of an excise tax and a tax rebate of equal size:

• A)always raises consumer welfare.
• B)necessarily harms the consumer.
• C)keeps the consumer surplus unchanged.
• D)does not lead to any deadweight loss.

---

Definitions:

Put Option

An agreement that grants the holder the option to sell a predetermined quantity of a basic asset at an agreed price during a defined period, without being obligated to do so.

Risk-Free Asset

An investment security that is guaranteed to return its full investment value (e.g., U.S. Treasury securities).

Market Price

The existing rate at which an asset or service can be sold or bought.

Convertible Bond

A type of bond that can be converted into a predetermined number of shares of the issuing company's stock at certain times during its life, usually at the discretion of the bondholder.