Suppose the government taxes food according to its fat content. That is, the more fat a food contains, the higher the tax on it. a) Would this taxation raise or lower the prices consumers pay for fatty foods (including the tax)? Draw a graph to illustrate your answer. b) Would this tax raise or lower the amounts of fatty foods consumers buy? c) What effect would this tax have on the prices of nonfatty foods? (Hint: What happens to the demand schedule for non fatty foods?
