Illustrate your answer with a diagram, placing gas on the horizontal axis and food on the vertial axis

Gus spends his income on gas for his car and food.

Gus spends his income on gas for his car and food.

Question
Gus spends his income on gas for his car and food. The government raises the tax on gas, thereby raising the price of gas. But the government also lowers the income tax, thereby increasing Gus’ income. And this rise in income is just enough to place Gus on the same indifference curve as the one he was on before the price of gas rose. Will Gus buy more, less, or the same amount of gas as before these changes?

Gus spends his income on gas for his car and food.

Gus spends his income on gas for his car and food.

Question
Gus spends his income on gas for his car and food. The government raises the tax on gas, thereby raising the price of gas. But the government also lowers the income tax, thereby increasing Gus’ income. And this rise in income is just enough to place Gus on the same indifference curve as the one he was on before the price of gas rose. Will Gus buy more, less, or the same amount of gas as before these changes? Illustrate your answer with a diagram, placing gas on the horizontal axis and food on the vertial axis

Gus spends his income on gas for his car and food.

Gus spends his income on gas for his car and food.

 
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