Demand Supply Tax
1. Problem: We have demand: $P=30-2Q$ and supply: $P=6+Q$. We want to find equilibrium price and quantity before and after tax, new supply function, tax burden division, and graph.
2. Before tax equilibrium: Set demand = supply
$$30-2Q=6+Q$$
$$30-6=Q+2Q$$
$$24=3Q$$
$$Q=8$$
Find $P$:
$$P=6+8=14$$
Equilibrium price $P=14$, quantity $Q=8$.
3. New supply after tax $t=3$: Tax adds to price producers receive, so effective price price consumers pay $P$ relates to producers as
$$P-3=6+Q$$
Rearranged
$$P=9+Q$$
New supply function: $P=9+Q$.
4. After tax equilibrium: Set demand equal to new supply
$$30-2Q=9+Q$$
$$30-9=Q+2Q$$
$$21=3Q$$
$$Q=7$$
Find $P$:
$$P=30-2(7)=30-14=16$$
New equilibrium price $P=16$, quantity $Q=7$.
5. Tax burden: Price rose from 14 to 16, consumers pay extra 2 units per quantity.
Producers receive $P - 3 = 16 - 3 = 13$, down from 14, producers pay 1 unit.
Total tax revenue: Tax rate $3$ times quantity $7$ equals $21$.
6. Summary:
(a) Equilibrium before tax: $P=14$, $Q=8$.
(b) New supply: $P=9+Q$.
(c) New equilibrium: $P=16$, $Q=7$.
(d) Consumers pay 2 units, producers pay 1 unit per item, total tax $21$.
7. Desmos equation for original and new supply and demand:
Demand: $y=30-2x$
Supply before tax: $y=6+x$
Supply after tax: $y=9+x$