Answer:
D) Providing a Lump-sum subsidy is the correct option.
Explanation:
Solution:
D) Providing a Lump-sum subsidy is the correct option.
Because:
This is done so as to compensate the consumer for the loss in welfare occurred by an increase in price per unit tax on apples.
And due to this compensating variation provided to the consumer, the consumer is now at the same real income level as before the rise of price.
And hence it helps us to capture the substitution effect. The remaining effect would be the income effect.
Hence, the option d. providing a lump-sum subsidy is the correct option.
