To analyze the impact of a tax on equilibrium price and quantity, we can follow a systematic approach using algebra. When a tax is imposed on suppliers, it effectively shifts the supply curve. For instance, if suppliers are taxed $1 per unit, we need to adjust the supply equation accordingly.
Consider the original supply equation given by Qs = 2P - 6 and the demand equation Qd = 10 - P. To account for the tax, we replace the price P in the supply equation with P - tax, leading to the modified supply equation:
Qs = 2(P - 1) - 6
Expanding this gives:
Qs = 2P - 2 - 6 = 2P - 8
Next, we find the new equilibrium by setting the modified supply equal to the demand:
2P - 8 = 10 - P
Solving for P, we combine like terms:
3P = 18
Thus, the new equilibrium price P is:
P = 6
To find the equilibrium quantity, we substitute P back into the demand equation:
Qd = 10 - 6 = 4
At this point, we have determined that the equilibrium price is $6 and the equilibrium quantity is 4 units. However, it is essential to distinguish between the price paid by buyers and the price received by sellers. The price paid by buyers, denoted as PB, is the equilibrium price of $6. Conversely, the price received by sellers, denoted as PS, is calculated by subtracting the tax from the buyer's price:
PS = PB - tax = 6 - 1 = 5
In summary, after the tax is applied, buyers pay $6, sellers receive $5, and the equilibrium quantity remains at 4 units. This analysis illustrates how taxes can affect market dynamics, shifting the burden between buyers and sellers while maintaining the overall market equilibrium.