Suppose That the Price of Gasoline Has Risen by 50

question 10

Essay

Suppose that the price of gasoline has risen by 50%. What happens to a consumer's level of well-being given he spends some of his income on gasoline? Diagram the impact of the increase in gas prices in a commodity space diagram, and show the relevant indifference curves.
Now, if the individual's income rises just enough so that his original consumption bundle exactly exhausts his income, will the individual purchase more or less gasoline (this level of income implies the consumer can afford his original consumption bundle)? Is the individual better-off at the higher price level of gasoline with the higher income level or the original price of gas and income?

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Definitions:

Economic Opportunities

Prospects or situations conducive to financial growth, employment, or investment.

Schooling

The process of providing or receiving instruction, especially at a school.

Life Expectancy

The average number of years that an individual is expected to live, based on statistical analysis of current mortality rates.

Canada

A country located in the northern part of North America, known for its vast landscapes, multicultural population, and as a prominent producer of natural resources.