3. The typical American driver has a weekly commuting budget of $68 to spend on gallons of gas (x) and other necessities (y). Assume that we can represent his preferences by the utility function u(x,y) = min[3x,y]. a) Suppose that the price of gas is $1 per gallon and the price of other goods is $1 per unit. Illustrate the budget set. b) Given the preferences what is the best bundle at these prices? Illustrate the best bundle and include an indifference curve through that bundle in your diagram above. Representative Abeler proposes to tax gasoline. She proposes to place a tax of $.25 per gallon (so the price will rise to $1.25). c) In your diagram for part (a) illustrate the effect of Representative Abeler's proposal on the budget set. What is the new best bundle of the typical driver? d) Illustrate the new best bundle in your diagram. What are the tax revenues raised by the gasoline tax? Representative Carlson took intermediate micro and he argues that a per unit tax is an inefficient way to raise revenues. He proposes that drivers should pay a flat fee instead of a per unit tax on gasoline (and so the price of gasoline would remain $1). e) If we are to make a revenue neutral comparison between the per unit tax and the flat fee then what would be the value of the flat fee? f) Assuming that the value of the flat fee is set as in part (e) then what would be the best bundle given the flat fee? Illustrate the budget line and this best bundle in your diagram above. g) Is the typical driver strictly better off with the flat fee than with the per unit tax? What (value) is the excess burden of the per-unit tax?