The only goods you buy are apples and oranges. Both apples and oranges sell for $1 apiece, and your income is $10 a day.

a. Draw your budget line.

b. One Tuesday the government announces two new policies. First, you must pay a sales tax on apples, so apples now cost you $2 apiece. Second, the government will give you a daily cash gift of $5. Draw your new budget line.

c. Suppose that with the new policy in place, you choose to purchase 5 apples. Add an indifference curve to your diagram that shows your new tangency.

d. Is your new tangency on, above, or below the original budget line? Explain how you know.

e. On Tuesday, after the new policies are implemented, are you happier, less happy, or just as happy as on Monday?