This next question is related for (6) above and is repeated for emphasis.

Your government wants you to consume less Coffee. It believes that the caffeine in coffee is harmful to your health. Thus, your government decides to place a tax on your purchase of coffee. Coffee is a NORMAL good. This tax is a FIXED PERCENTAGE of the price (amount of money) you pay to this product. For every dollar you spend on coffee, you pay a "t" percent tax on that dollar. Therefore the more money you spend on coffee, the more tax you pay.

BUT, your government feels sorry for you and decides to rebate back to you the tax you pay on the coffee that you purchase (all of it). With the rebate, you can do what you wish.

Please use the tools we have developed thus far in the course to show:

(1) The original consumer equilibrium before the tax and the impact of the tax on the budget line and the new consumer equilibrium after the imposition of the tax.

(2) The impact of the tax rebate on the consumer and the new consumer equilibrium after the rebate.

(3) How the new consumer equilibrium with the rebate leaves the consumer "worse off" than had the tax not been levied in the first place.