Suppose Shabna has a fixed income and she can consume only two goods and they are bread and butter. Suppose the government has imposed a tax on butter, how this will impact her consumption bundle. Support your answer with proper graph(s) showing equivalent variation and the government's tax revenue. Also, explain your understanding of equivalent variation.

Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter4: Utility Maximization And Choice
Section: Chapter Questions
Problem 4.13P
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Suppose Shabna has a fixed income and she can consume only two goods and they are bread and butter. Suppose the government has imposed a tax on butter, how this will impact her consumption bundle. Support your answer with proper graph(s) showing equivalent variation and the government's tax revenue. Also, explain your understanding of equivalent variation. 

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