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Carmen, the Queen of Electra, is concerned over what she believes is an excessive consumption of electricity. Consequently, she proposes an excise tax on electricity consumption which, if implemented, would add $500 per year to the taxes of the average Electran household. An advisor to the Queen warns of a consumer backlash and suggests the following amendment-give the $500 back in the form of a tax rebate. The Queen thinks this is the dumbest idea she's ever heard. She reasons that such a plan would do nothing to reduce electricity consumption since the plan would take away $500 with one hand, but give it back with the other!
Do you agree with the Queen or not? Fully explain your answer using standard indifference curve analysis.
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