The demand and supply functions of an agricultural product (call it 'good X') are given

by:

Qd = 60 3P

Qs = 2P 10,

Where P is price (in Rs.) per unit, and Qd and Qs are quantities demanded and sold,

respectively, in thousands of units.

(a) Find the equilibrium price and quantity good X. Using a demand and supply

diagram, show how you will represent the above information. In your answer,

clearly label your axes, prices and quantities and the equilibrium price.

[5 marks]

(b) Due to unfavourable climatic conditions such as heavy rainfall events leading

to flooding that wipe out entire crops over wide areas, reduced plant growth and

increase the cost of living of farmers, the Mauritian government contemplates

to set the price of good X at Rs 16 per unit.

(i) Is there a shortage or surplus at this price?[1 mark]

(ii) Calculate the resulting shortage or surplus at this price. [4 marks]

(c) Starting at the initial equilibrium, suppose a sales tax of Rs. 3 is now imposed

on each unit of good X.

(i) Calculate the new equilibrium price and quantity.[6 marks]

(ii) Explain how the burden of the tax is shared between consumers and the

seller of good X.[5 marks]

(iii) How does the price elasticity of demand for good X affect the incidence

of the tax?[4 marks]