Consider a small fictional country that taxes cigarettes and subsidizes private primary education. Suppose that the yearly demand for cigarettes is QD = 20 - P while the supply of cigarettes is Qs = 3P. Price is in euros per pack of cigarettes while quantity is in millions of packs. a. Find the equilibrium price and quantity in the absence of government intervention. Also find the consumer surplus, the producer surplus and the total surplus (CS + PS). How do you interpret these numbers? b. In a diagram, draw the demand and the supply curves. Then, with different colors, shade in the areas representing the consumer surplus and the producer surplus. Suppose that the local government imposes a cigarette tax of $4 per pack. The tax is imposed on suppliers. c. How does the tax affect the demand and supply of cigarettes? After the introduction of the tax, what gross price will buyers pay? What net price will sellers earn? d. In your graph, illustrate the buyer price and the seller price after the introduction of the tax. e. After the introduction of the tax, what is the consumer surplus? What is the producer surplus? What is the tax revenue? What is the excess burden (deadweight loss) of the tax? f. What is the share of the tax burden borne by smokers? What is the share born by sellers of cigarettes? Illustrate in your graph. g. In your opinion, do taxes on cigarette increases or decreases social welfare? Suppose now, that in the local market for private primary education demand is QD = 240,000 - 15P while supply is Qs = 5P where P is the tuition in euros and Q is the number of children. h. Find the equilibrium price and quantity in the absence of government intervention. Also find the consumer surplus, the producer surplus and the total surplus (CS + PS). Suppose that the government pays families with children in private primary schools a voucher (a subsidy) of $4,000 per child. i. After the introduction of the school voucher program, what is the net price paid by families? What is the gross price received by private schools? j. After the introduction of the voucher program, what is the consumer surplus? What is the producer surplus? k. Who benefits the most from the voucher program, families or private schools? Would your answer be the same if the demand and supply were QD = 200,000 - 5P and Qs = 15P respectively?