How does a tax affect an individuals decision

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How does a tax affect an individual’s decision? Consider the case of an individual who consumes two goods: bread and tortillas, both of which are initially free. Also, assume that the price of each good and the individual’s income are given. How would the individual’s consumption decision—i.e., how much bread and tortillas she consumes—change when a tax is levied on tortillas while bread remains tax free? Your explanation shall refer to budget constraint, indifference curves, income effect, and substitution effect.

Reference no: EM13816203

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