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

Summary:
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

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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 (Ed) is less than one.

That is the relationship that Ed has with total revenue. If P falls and Ed 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   Ed = % change in Qd   = 10/5 then  Ep  > 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 Ed  > 1, a decrease in price means an increase in TR.

Also, the % change in Qd (2.2%), is much less than the % change in P (30%). That would be an Ed 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).

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