Egg market seems to act just the way supply and demand predict

Egg Glut Deepens Problems in Farm Economy: Shares in top egg producer Cal-Maine Foods take a hit, as per-dozen prices decline by Micah Maidenberg and Kirk Maltais.

This was from the WSJ on Sept. 30. Retailers passed their lower cost along to consumers and quantity increased. Excerpts:

"Jackson, Miss.-based Cal-Maine, the nation’s top egg producer, said Monday that prices for its eggs fell 30% to about 92 cents a dozen in its quarter that ended Aug. 31. The result cut Cal-Maine’s sales by 29%, year over year."

"Retailers have been quick to pass the drop in egg prices on to customers, eager to make more sales of a consumer staple. A milk glut has also encouraged retailers to cut prices on that standby"

"Purchases at retail stores rose 2.2% for the year through Aug. 10 from the previous 12 months"

If Cal-Maine saw its total revenue fall 29% when eggs prices fell 30%, that implies that the demand for eggs is inelastic, meaning he price elasticity of demand (E_d) is less than one.

That is the relationship that E_d has with total revenue. If P falls and E_d is less than one, TR falls.

Ep	Price	TR
> 1	Increase	Decrease
> 1	Decrease	Increase
= 1	Increase	No change
= 1	Decrease	No change
< 1	Increase	Increase
< 1	Decrease	Decrease

Another way to see the relationship between price changes and changes in TR is to look at the price elasticity of demand and changes in TR.

If   E_d = % change in Q_d   = 10/5 then  E_p  > 1

              % change in P

Now look at TR = P*Q. If P goes down 5% it would lower TR. But, since Q goes up 10%, if more than offsets the fall in Q and TR will rise. Notice in the table that if E_d  > 1, a decrease in price means an increase in TR.

Also, the % change in Q_d (2.2%), is much less than the % change in P (30%). That would be an E_d much less than one (although that does not use the mid-point formula, which allows us to get the same numerical answer whether the prices rises or falls).