The supply and demand curves for a product are given by the following equations:

P = aQS + b and P = cQD + d

where QS

is the quantity supplied, QD is the quantity demanded, P is the price of the product,

and a, b, c and d are constants.

Part A Give a definition of supply and demand curves and explain what is meant by equilibrium price and equilibrium quantity. Give an explanation in context, considering the equations above and supporting your explanations with the use of appropriate graphs. State the range of values of the parameters a, b, c and d giving reasons based on supply and demand economic theories.

Part B The equation of the demand function for white paint is given by QD = 145 0.5P where QD is the number of cans demanded weekly and P is the price per cans in pounds. From a market analysis was found that: The price of each can increases by 0.50 for every extra 10 cans produced, and The number of cans produced is the same as the number of cans bought when their price per can is 106. Sketch both the supply and the demand curve for sparkling wine on the same graph labelling the equilibrium point and any intersections with the axis. You need to label each axis and give the equation for the curves in the form P = f(Q). You also need to show all your working and give full explanations in your own words.

Part C Using the supply and demand curves given in Part B, determine the effect on the market equilibrium if a fixed tax of (3 + N) is introduced on the production of each bottle of wine. Here N is the last digit of your ID number. You need to use appropriate graphs to represent this situation, show all your working and provide full explanations in your own words and in context. You also need to explain how much the consumer and the producer will pay more due to the introduction of this new tax.