The Second Regulation of Demand and Provide in Motion

It’s no shock egg costs are hovering.  In October 2024, UMASS – Amherst economist Isabella Weber argued that value controls are wanted to maintain costs beneath management and, additional, that the controls wouldn’t have the damaging results we often predict, comparable to shortages, deadweight loss, and so forth.  I responded to her claims right here.  One of many factors I raised was:

Moreover, for the reason that value being stored artificially low disincentivizes the availability curve from turning into elastic and/or rising, the prices of value ceilings persist longer than they might in any other case.

4 months later, we see this in motion.  The excessive costs of eggs are inflicting folks to contemplate turning to yard rooster coops and even renting chickens.  That is an instance of the Second Regulation of Demand: “Elasticities of demand with respect to cost are better the longer the time after a value change” (Common Economics by Armen Alchian and William Allen, p 116).  In different phrases, the longer costs stay comparatively excessive, the extra folks will get hold of or develop substitutes, making the demand curve extra elastic.  The identical holds true for provide: the longer costs stay comparatively excessive, the extra artistic folks shall be to deliver provide to the market.  When eggs have been $0.99 a dozen, it made little sense to have a yard rooster coop, which has begin up prices of hundreds of {dollars}.  However, with egg costs pushing the double-digits (a dozen giant eggs are promoting for $9 at my native retailer), now the relative value of yard coops has fallen and individuals are turning to that various.  The demand for eggs is turning into extra elastic.  Similar with provide, as we see folks with coops promoting or giving eggs to their neighbors.

With value controls in place, this course of could be a lot tougher.  The market is shifting towards an answer.  Worth controls would have slowed this course of.  Reasonably than ending shortages and controlling inflation, Weber’s proposal would have simply turned the seen prices invisible.  

Replace: The worth of eggs has fallen since I initially wrote this piece.  The worth of a dozen eggs at my native retailer is now (as of three April) $5.79.  Nevertheless, I can’t change the unique put up as a result of the drop helps the purpose I’m making right here.