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What are you going to do about the price of gas? Answer the following questions and bring in outside resources as needed. Let us say you graduate from college and earn $30,000 in pretax income and initially pay $6,600 in income taxes, consume 600 gallons of gasoline per year (at a price of $5.00 per gallon), and spend $18,000 on other goods (at a price of $1.00 per unit).
A) Draw a complete graph showing your initial budget line, indifference curve, and utility maximizing quantities of gas and other goods. What is the marginal rate of substitution?
B) What would happen if the government imposed a $2.00 per gallon gas tax? How would this affect your decision making?
C) Discuss how the tax impacts you abilities and discuss other factors that will be considered when making decisions.
Verified Expert
Pretax income was $30,000 As 6,600 has to pay as income tax the income becomes $30,000- 6,600= $23,400 The consumer is consuming 600 gallons of gasoline and 18000 other goods.
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