Answer to Question #59329 in Microeconomics for Bob

Question

The Canada government wants to reduce the consumption of beer. A two dollar tax on each bottle purchased may reduce the consumption of beer under which circumstance(s)?

a. Beer is an inferior good.
b. Beer is a normal good.
c. Beer is an inferior good and the taxes collected from this tax are rebated to consumers.
d. Beer is a normal good and the taxes collected from this tax are rebated to consumers.
e. Both B and C

Answer 1

If Canada government wants to reduce the consumption of beer, then $2 tax on each bottle purchased may reduce the consumption of beer when beer is a normal good and the taxes collected from this tax are rebated to consumers, because in such case the price of beer will increase and the demand for beer will decrease, decreasing the total consumption of beer.
So, the correct answer is d. Beer is a normal good and the taxes collected from this tax are rebated to consumers.