How do taxes and subsidies affect market equilibrium and public welfare in an economy?

Taxes and subsidies are tools that governments use to influence the economy and the behavior of consumers and producers. When a government imposes a tax on a good, it raises the price for consumers and can lead to a decrease in demand, which may disturb the market equilibrium where supply meets demand. For example, if a tax is placed on soda, people might buy less soda because it costs more, which can lead to lower sales for soda companies. On the other hand, subsidies lower the cost of production for businesses, encouraging them to produce more and potentially lowering prices for consumers, which can increase demand. This shift in supply and demand can improve public welfare by making essential goods more affordable or by discouraging unhealthy consumption, creating a balance that benefits society.