To simplify our consumption models, suppose U.S. consumers only purchase food and all other goods where food is plotted along the horizontal axis of the indifference map. Also, suppose that all states initially impose state sales taxes on all goods (including food), but then the states exempt food from the state sales tax. How does this tax policy change alter the consumer's budget line?
A) Makes the budget line steeper
B) Makes the budget line flatter
C) Parallel rightward shift
D) Parallel leftward shift
E) none of the above

Question

Quizplus · Accepted Answer

Exempting food from the state sales tax effectively reduces the price of food relative to other goods, making it cheaper for consumers to purchase food. This change causes the budget line to become flatter, indicating that consumers can now buy more food relative to other goods for the same amount of money.

To Simplify Our Consumption Models, Suppose U