The supply and demand equations of two interdependent commodities are

where t is the unit tax imposed on good 1.

Show that the market equilibrium prices satisfy a matrix equation of the form Ax = b where

Find the inverse of A and hence solve this system to find P₁ and P₂.
Write down the taxation multiplier for P₂.

Transcribed Image Text:

Os, = 4(P, – t) - 5, Os, = P, -3, Ор, — 27 — ЗР, + Р, On, — 25 + 2P, - ЗР, %3D х P, %3D