Imagine a world in which the demand and supply condition in the market for eggs is characterized as follows:
Demand: P = 3.5 – 0.002Qd
Supply: P = 1.5 + 0.008Qs
Where, P = price per dozen and Q = dozens of eggs bought or sold per week.
- Find the market equilibrium price and quantity.
- If the government now decides to place a $2.50 limit on the price at which eggs can be sold, what effect would this have on the market? Would there be a surplus or scarcity of eggs? If so, how much?
- Assume now that instead of limiting the price of eggs, the government decides to give a subsidy to egg suppliers, in order to regulate the price of eggs. How much subsidy per dozen eggs would be needed to achieve a $2.50 post-subsidy price?