The supply and demand functions are Qd = 100 – P and Qs = 2P – 50 in thousand pieces, and the price is set in dollars.

The supply and demand functions are Qd = 100 – P and Qs = 2P – 50 in thousand pieces, and the price is set in dollars. What are the consequences of the introduction of a 10% sales tax on this market?

Qd = Qs.

100 – P = 2P – 50.

100 + 50 = 2P + P.

150 = 3P.

P = $ 50.

Qd = 100 – 50 = 50 units.

Qs = 2 * 50 – 50 = 100 – 50 = 50 units.

If a 10% sales tax is introduced on the market, the price of the product will increase:

P = 50 * 10% + 50 = 51 dollars.

Then the demand for the product will change and amount to:

Qd = 100 – 51 = 49 units.

And the offer for this product will be:

Qs = 2 * 51 – 50 = 102 – 50 = 52 units.

Demand <supply.

There is a shortage of goods on the market.