Consider a village's competitive market for rice. The daily market demand for rice (in bushels per day) is given the equation Q = 20 - P or equivalently P = 20 - Q. The market supply of rice is given by the equation Q = P - 4 or equivalently P = 4 + Q. Answer ALL the questions below.

1. Illustrate the supply and demand for rice in a graph. Label all axes, curves, and intercepts.
2. What is the price and quantity of rice in competitive equilibrium? Label both in your figure. Why is this a Nash equilibrium?
3. What is the producer and consumer surplus in equilibrium? Show both in your figure.
4. Is the competitive equilibrium efficient? Why or why not?
5. Suppose that the production of rice requires the use of a toxic pesticide, which causes health problems in the village. The marginal external cost of rice production is given by the equation MEC = 4. What is the optimal Pigovian tax on rice? How would that tax affect the equilibrium price and quantity?