Demand and supply is one of the most essential fundamental concepts of economics and it controls the behavior of market economy. Purpose of assignment is to study the reasons for increase in price of egg over the period. Egg price at markets may be affected by many factors related to demand and supply. Article says that the main cause for the price increase attributed to increases in price of inputs, especially in feed prices. In order to elaborate the topic, economic models/concepts such as price elasticity of demand, income elasticity of demand and cross elasticity of demand are being used. These models will give a clear explanation about how the demand has changed in different situations. …show more content…
During the month of December demand is likely to be inelastic for eggs as it’s an essential ingredient in Christmas goodies from puddings to cakes. Demand is inelastic when the percentage change in quantity demanded is less than the percentage change in price. “Prices of eggs have seen an increase of 30% as compared to the rates prevalent during the month of December last year.”
As mentioned in the article average wholesale price of 100 eggs was around Rs.225.27 in 2009 it has increased to Rs.331.80 at the end of the current year. Due to inelasticity of demand, suppliers are able to gain larger income by increasing prices of eggs. It is shown in the diagram below.
However, this situation is likely to change during other months of the year. People may reduce the demand if the prices are too high and they will switch into other substitute goods such as fish, meat or imported eggs if their prices are lower than domestic eggs. Therefore eggs tend to have an elastic and inelastic demand during different seasons.
.2 Income elasticity of demand Income elasticity of demand measures the responsiveness of quantity demanded to a change in income. Product like an egg tends to be a normal good as the demand does not increase due to the change in income. Consumers purchase this product only when it is necessary therefore YED is positive but less than one. Increasing prices during the month of December may affect the disposable income of