Problem
1. George spends his income on gasoline and "other goods."
(a) First, draw a budget constraint, with gasoline on the horizontal axis. Then, illustrate by how much the intercept on the gasoline axis changes in response to a doubling of the price of gasoline.
(b) Suppose that, in addition to a higher price, the government imposes a ration on George that limits his purchase of gasoline to less than some amount within his affordable set. Draw the new effective budget constraint.
2. Instead of the ration in the preceding question, suppose that the government increases taxes on gasoline, in addition to the market price increase. Illustrate this budget constraint.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.