3. Why would the use of gasoline decline if its price rose as a result of a gasoline tax but the effect of the price rise was compensated by a tax rebate? Give a graphical representation of your answer identifying the income effect, substitution effect. Which of these effects will the rebate represent?

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When the price of gasoline rises due to a gasoline tax but the effect of this price increase is compensated by a tax rebate consumers will experience ... View the full answer