A consumer originally faces the budget line P_XX + P_YY = M. The government imposes a lump-sum tax of u, a quantity tax on good X of t, and a quantity subsidy on good Y of s. Write the equation for the new budget line in the format of Y = a + bX.

Let good X be gasoline consumption and good Y be "dollars spent on all other goods." Draw a diagram showing how the budget line changes if the government imposes a tax on gasoline that doubles its price, while at the same time giving consumers a lump-sum subsidy.

The price of X is $10, the price of Y is $20, and the consumer's income is $1000.Suppose the price of good Y doubles and income increases by 50%. Add the new budget line to your drawing for question 1. Clearly label each budget line.