You are the manager of medium-sized company that deals in production of make-ups in Ghana. Suppose one morning you heard on the news that the government has imposed a lump sum tax on every unit of make-up sold in the market. a) Using demand and supply analysis, illustrate the effect of the lump sum tax imposed on the make-up market by showing whether there will be a shortage or surplus of make-ups in the market.
b) How would you expect the equilibrium price and quantity of make-up to change in the market?
c) Suppose during the same period the price of a leading substitute product decreases along with the change the effect of the tax mentioned above, how would you expect the equilibrium price and quantity of make-up to change?
Note: Draw a graph to explain your answers.