Answer to Question #125822 in Microeconomics for Faria

Question

Suppose that a budget equation is given by p1x1 + p2x2 = m. The government decides to impose t% tax on good 1 and 2t% of tax on good 2. What is the formula for the new budget line? Show the original and new budget lines in a diagram.

Answer 1

$$(p_1+t)x_1+(p_2+2t)x_2=m$$