Draw the new effective budget constraint

Reference no: EM131072548

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.

Reference no: EM131072548

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