Which of the Following Is True of an Excise Subsidy

question 60

Multiple Choice

Which of the following is true of an excise subsidy?

• A)An excise subsidy has both an income and a substitution effect which causes the consumption of the subsidized good to rise.
• B)An excise subsidy has a substitution effect since the subsidy artificially lowers the price of the subsidized good causing the consumer to increase consumption of the good,but no income effect.
• C)An excise subsidy increases consumption of a good by the same quantity as does a cash transfer but at a lower cost to the government.
• D)An excise subsidy has an income effect since the subsidy increases the consumer's income but no substitution effect.

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