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.

  1. Find the market equilibrium price and quantity.
  1. 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?
  1. 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?

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