Taxes Discourage Harmful Consumption

Steps:

• Identify the goal: reduce cigarette consumption by shifting demand or supply curves.
• Recall that consumption depends on price; higher prices lower quantity demanded via the law of demand.
• Evaluate policies: subsidies lower prices (increase consumption), while taxes raise prices (decrease consumption).
• Select the policy directly targeting cigarettes to increase their price.

Why D is correct:

• Indirect tax on cigarettes raises their price, shifting the supply curve leftward and reducing quantity demanded, per the law of demand.

Why the others are wrong:

• A: Subsidy lowers cigarette prices, increasing consumption.
• B: Interest rates affect borrowing/saving, not directly cigarette prices.
• C: Income tax reduces disposable income but doesn't target cigarettes specifically.

Final answer: D