Govt. of the country imposes tax on petrol usage by the people, what impact will this have on budget line of a consumer showing consumption of  two commodities petrol and food items on it? What is policy implication behind tax imposition? 

When the government will impose tax on petrol usage by the people, it will increase the price of petrol. When the price of the petrol will increase, the consumer would be able to buy less of petrol form his incomeI.ts effect on budget line of the consumer if the price of food items remains constant can be depicted in the following diagram.


In the given diagram, P₁ is the price of petrol,P₂ is the price of food items and $\overline{M}$ is the money income of the consumer. When government imposes tax on petrol, the price of petrol will increase to $P_1^{*}$, and hence, consumer would be able to consume less of petrol given his money income. This will increase the slope of budget line and, will make it steeper. 

In the long run, increased petrol prices will also increase the prices of food items, and hence, will result in a leftward shift in the budget line of the consumer. The policy implication behind tax imposition is to minimise the demand of petrol by the consumers and to raise tax revenues.