After the tax takes effect the budget line shifts from AB to AD dotted blue

After the tax takes effect the budget line shifts

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After the tax takes effect, the budget line shifts from AB to AD (dotted blue line). The consumer maximizes his preferences by choosing E (U 1 ), with a gasoline consumption of 900 gallons (decline by 25%). However, when the proceeds of the tax are rebated to the consumer, his consumption increases somewhat, to 913.5 gallons at H. The rebate program reduces the gasoline consumption (C to H), and his level of satisfaction, but would be worst off if without the rebate program (E compared to H). EXAMPLE 4.2
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