Suppose that the market for laptops is perfectly competitive. The long-run equilibrium price is $3000 for a laptop. Suppose that the laptop market is initially in long-run equilibrium. Assume that all businesses that make laptops are identical.

(a)On a diagram, illustrate the market demand for laptops, the short-run and long-run market supply of laptops. (1 mark)

The government decides to impose $500 tax for each laptop sold by the firm.

(b)Using an appropriate diagram, explain how the introduction of the tax will affect laptop producers in the short run and in the long run. Also explain how the tax will affect the market price of laptops and the total number of laptops sold in the short run and the long run. Will the tax lead to a larger change in equilibrium quantity in the short run or in the long run? Fully explain your answer. (4 marks)

(c)Donald, a politician, says that the introduction of a tax on laptops will make consumers worse off but will not lead to any deadweight loss in the laptop market in the long run. Could Donald be correct? If so, explain how and when Donald could be correct. If not, explain why Donald could not be correct. Fully explain your answer using a relevant diagram. (3 marks)

(Note: for part c, remember to comment on the producer surplus, consumer surplus and thetax revenue in your answers)