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’s 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?
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