Which of the following is true of an excise subsidy?
6.
Question 6
Which of the following is true of an excise subsidy?
1 point
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.
An excise subsidy has an income effect since the subsidy increases the consumer’s income but no substitution effect.
An excise subsidy has both an income and a substitution effect which causes the consumption of the subsidized good to rise.