Suppose the supply of a good is given by the equation $Q_S = 360*P_S - 720$. And the demand for a good is given by $Q_D = 960 - 120*P_D$. The government decides to levy a tax of \$2 per unit on the good, to be paid by the seller.
And I must find the equilibrium quantity of the curves, after the \$2 tax has been taken into account for. I know the equilibrium quantity is 540 before the tax based on the following calculations:
- $360P-720 = 960-120P$
- $480P = 1680$
- $P = 3.5$
- If we sub in 3.5 into both equations ($Q_S$ and $Q_D$) then we get 540.
Therefore, the equilibrium quantity is 540 before taxes have been taken into account. However, I am unsure how to figure out the equilibrium quantity after the tax.
Does anyone know how to go about solving this issue?
All help is appreciated.