"The spike in egg prices has been attributed to the millions of chickens that were slaughtered to limit the spread of bird flu and farmers having to compensate for inflation driving up their costs.
But even though roughly 43 million of the 58 million birds slaughtered over the past year to help control bird flu have been egg-laying chickens, the size of the total flock has only been down 5% to 6% at any one time from its normal size of about 320 million hens.
The national average retail price of a dozen eggs hit $4.25 in December, up from $1.79 a year earlier, according to the latest government data."
"But trade groups say egg prices are largely determined by commodity markets, and experts say the bird flu outbreak — combined with the skyrocketing cost of fuel, feed, labor [these things in red cause a decrease in supply which raises the price-see graph below] and packaging and continued strong demand for eggs — is the real culprit for the price increases.
“Current egg prices reflect many factors, most of which are outside the control of an egg farmer," said Emily Metz, president and CEO of the American Egg Board trade group.
Purdue University agricultural economist Jayson Lusk said “in my view, the basic economics of the situation well explain the price rise.” He said small reductions in egg supply can result in large price increases because consumer demand for eggs doesn’t waiver much." [I wish he had said the quantity demanded does not change much because he is talking about inelastic demand-again see the graph below]
With a steep demand curve, we generally have inelastic demand (as always, slope and elasticity are not the same thing). When the price goes up quantity demanded only goes down a small amount. So in the graph above with the given reduction in supply (which is caused by higher costs for the producers), we get a fairly large price increase. If the demand line was flatter or more elastic, price would not rise so much.
No comments:
Post a Comment