Problem
A student consumes root beer and a composite good whose price is $1. Currently, the government imposes an excise tax of $0.50 per six-pack of root beer. The student now purchases 20 six-packs of root beer per month. (Think of the excise tax as increasing the price of root beer by $0.50 per six-pack over what the price would be without the tax.) The government is considering eliminating the excise tax on root beer and, instead, requiring consumers to pay $10.00 per month as a lump-sum tax (i.e., the student pays a tax of $10.00 per month, regardless of how much root beer is consumed). If the new proposal is adopted, how will the student's consumption pattern (in particular, the amount of root beer consumed) and welfare be affected? (Assume that the student's marginal rate of substitution of root beer for other goods is diminishing.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.