Suppose the demand for carrots is given byand the supply for carrots is given by

• What is the equilibrium price of a carrots and what is the equilibrium quantity? [1mark]
• Illustrate the equilibrium price and quantity in the diagram. [0.5 mark]

• Compute the producer and consumer surplus and clearly show them in your diagram.

  
  

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• Does the tax affect the marginal benefit for consumers?If“YES”,then how?Does it affect the marginal cost of producers? If “YES”, then how? Explain your answerscarefully. [0.5 mark]
•   Compute the new equilibrium price and quantity. To do this rewrite the old supplycurve as ⁄ and modify it to account for the tax added. Then find the newequilibrium by using just computed new supply curve. [2 mark]
•   Illustrate the situation after the tax has been imposed on a new diagram. Show thenew supply and demand curves. Show the new equilibrium, prices paid by consumersand producers, and the new equilibrium quantity. [1 mark]
•   Argue that the taxation has led to an inefficient outcome and compute the deadweightloss. [1 mark]