During the energy crisis of the mid-1970s a proposal was made to increase the tax on gasoline by 50 per gallon. The government would give poor consumers an amount of cash large enough that they could buy their original bundle (of gasoline and other goods).

1. Show how a typical poor person's budget line changes as a result of the tax and the subsidy. (3 points) 2. Use a graph to show how the tax and subsidy could affect this person's optimal bundle. (5 points)

3. Is this individual better or worse off or stay on the same bundle as a result of the tax and the subsidy? Explain your answer using your graph and show the possible scenarios.