ANSWERS TO QUESTIONS
– What is the substitution effect on your consumption of driving?
Because of the new technology, this individual needs to spend less money for the gas and the gas price will be less for him. Thus he can buy more gas with the same budget and then he might want to buy more gas to travel more miles. That is the substitution effect on the consumption of driving.
– What is the income effect of your newly increased fuel efficiency on your budget constraint?
The Budget for the individual is Income=Miles driven X Cost of Gas per mile + Quantity