Tutor could you please help me understand this question, I assume they are worse off due to consumption falling in regards to low elasticity of demand leading to the substitution effect overpowering the income effect, but I don’t fully understand the question and could use some clarification.
If the federal government taxes gasoline but returns the entire money back to citizens, are citizens
better off, worse off, are unaffected by this policy? Assuming that all citizens are identical in their income and preferences.
using a graph with gasoline on the X-axis and composite good on the Y-axis. Explain the answer in terms of income and substitution effects.