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Following are the set of equations describing the demand and supply of two goods X and Y:
Demand functions:
Xd = a1 - b1*Px + c1*Py
Yd = a2 - b2 * Py +c2*Px
a1, a2, b1, b2, c1, c2 are positive.
Supply functions:
Xs = -f1 + g1*Px
Ya = -f2 + g2*Py
f1, f2, g1, g2 are positive
Government imposed t% tax on consumption of X and allows s% subsidy to producers of Y.
How will the set of equations change?
I replaced Px by Px(1+t) in the two demand equations as according to my understanding consumers now face a higher effective price for X. But I'm not sure how to incorporate the subsidy and what would be the economic logic behind such a change.
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