Market Equilibrium and Tax Burden Calculation

Published on May 24, 2026

Word-Problem

Solve for original and new market equilibrium prices and quantities after a GST is introduced, and determine the tax burden distribution between consumers and producers.

Question

Answer

Based on the provided image, here is the step-by-step solution to the problem:

Given Data:

Demand function:
Supply function:
GST (Tax): (thousand VND per bottle)

1. Find the original equilibrium price and quantity before tax.

Before the tax is introduced, the consumer price equals the producer price (

). Equilibrium occurs where quantity demanded equals quantity supplied (

Rearrange the equation to solve for

Now, substitute

into either the demand or supply equation to find the equilibrium quantity

Result: The original equilibrium price is 20 thousand VND and the equilibrium quantity is 60 bottles.

2. Determine the new equilibrium after GST.

With a GST of 5 thousand VND, the consumer price (

) is the producer price (

) plus the tax:

Substitute this relationship into the demand equation:

Set the new demand equal to the supply (

Now, find the consumer price (

Finally, find the new equilibrium quantity (

Result: After GST, the consumer price is 22 thousand VND, the producer price is 17 thousand VND, and the new quantity traded is 54 bottles.

3. Discuss who bears more tax burden.

The tax burden is shared between the consumer and the producer based on the change from the original equilibrium price (

Consumer Burden: thousand VND per bottle.
Producer Burden: thousand VND per bottle.

Conclusion: Since the producer’s price decreased by 3 units while the consumer’s price increased by only 2 units, the producers bear more of the tax burden than the consumers.

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