“If the government gives consumers a lump-sum payment (i.e. a rebate) that is exactly equal to the amount of a per unit sales tax they pay on a product, then it will have no impact on their demand for that product. What is worse this type of tax and rebate scheme makes them unhappier.”
Using standard economic theory of consumer choice, critically evaluate this assertion for both normal and inferior goods. Discuss some of the limitations of using the standard model to analyse this issue paying particular attention to the salience of taxes.
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