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]

(d) Differentiate between the features of perfect competition and monopoly.[10 Marks]

(e) Define the term "barriers to entry". List down the types of barriers that

monopolists impose to new entrants.[10 Marks]

(f) Are monopolies always bad? Justify your answer.[5 Marks]

(g)The price and income elasticity of demand is an important concept for any

businessmen and every government in their decision making.

You have been appointed as the Manager of a small and medium

enterprise. Explain how the knowledge of price elasticity and income

elasticity of demand can be of use to you. Use illustrative examples to

support your answer.(12)