Think about the markets for i) brown sugar and ii) luxury handbags and assume that luxury handbags are a differentiated product and brown sugar is a homogeneous product (products are identical across sellers).

(a)For which good would price be a more important criterion for consumers to make a buying decision? Why?

(b)Consider the producers in each market. In which market are they price-takers, and in which market are they price-setters? Why?

(c)Draw the following two models: a monopoly market for a differentiated product, and a perfectly competitive market. On each of your models show the profit-maximizing equilibrium point and show any areas of consumer surplus, producer surplus and deadweight loss. Label all relevant axes, points and curves on your model.

(d)Now assume that the firm in a monopoly market for a differentiated product had sufficient information and so much bargaining power that it could charge each consumer separately, and the maximum they would be willing to pay. What would be the equilibrium quantity in this market. Is this equilibrium a Pareto-efficient outcome? Is this outcome fair? Explain your answers by using your graph from part (c).

(e)Discuss the role and impact of advertising in each type of market structure (monopoly and perfectly competitive).

(f)Assume that in the market for luxury handbags the government is considering imposing a tax in order to increase tax revenue. Government economists have reported that a 10% increase in the price of luxury handbags is expected to cause a 7% reduction in the quantity demanded of luxury handbags. Based on this information what is the price elasticity of demand and what does this imply about the effectiveness of a luxury handbags tax in raising tax revenue?

most important to answer questions DEF. Thanks.