In the 1970s, President Carter proposed reducing US dependence on oil by raising the tax on gasoline and combining this with a rebate on other federal taxes, so that an average household would pay the same overall amount in taxes as before. This proposal was killed in Congress, where Congressmen successfully argued that with this proposal, people would be able to buy exactly the same quantities of all goods (including gasoline)
as before, and that it was likely that most people would do so. Thus, the net effect on gasoline consumption would be negligible. Analyze the effects of the proposal on an average consumer, using a standard demand and supply framework and using the assumption that this consumer would in fact be able to buy the same quantities of all goods and services as before. Would the proposal have led to decreased gasoline use (as Carter claimed), to unchanged gasoline use (as the Congressmen opposing him claimed), or to increased gasoline use? Why? Illustrate your reasoning graphically.
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