Suppose the market for eggs in Nagog Village can be described by the following D & S equations:

QD = 140 - 20P QS = -40 + 40P where Q is in dozens of eggs per week and P is price per dozen.

1. Construct an accurate, neat, and fully labeled graph.

1. Calculate equilibrium P* and Q* and label your graph accordingly.

P* = _____

Q* = _____

1. Calculate the $ value of consumer surplus (CS) and of producer surplus (PS) at P*, Q*.

CS = _______

PS = _______

1. Suppose government imposes a price ceiling on eggs at P_C = $2 per dozen. Determine the effects of the ceiling on CS, PS, and allocative efficiency.In other words, calculate

• The change in CS = ___________ NOTE:Change = difference between old

(part c.) and new (part d.) level.

Be sure to indicate whether the change

is positive or negative. Use (+) to denote

an increase; (-) a decrease.

• The change in PS = ____________

• The deadweight loss DWL = ___________

1. Now suppose that the government imposes a price floor on eggs instead.The floor is set at P_F = $4 per dozen.Calculate the change in PS and the DWL.

• The change in PS = ____________

Again use (+) to denote

an increase; (-) a decrease.

• The deadweight loss DWL = ___________