It’s no surprise that egg prices are skyrocketing. In October 2024, Isabella Weber of UMass – Amherst Economist argued that price control was necessary to manage prices, and furthermore, the control was not taken away from the negative effects we normally expect, such as shortages, loss of deadweights. One of the points I raised was:
Furthermore, because prices are artificially decreasing, the supply curve maintains elasticity and growth in supply curves, which means that price ceiling costs last longer than they would otherwise.
After 4 months, you’ll see that this is working. Due to the high prices of eggs, Pere is considering resorting to a chicken coop in his backyard or renting chickens. This is an example of the second law of demand. “The longer the time after a price change, the more elastic the price demand will be” (Universal Economics by Armen Alchian and William Allen, p. 116). In other words, the longer prices remain relatively high, the more people will search or develop exchanges, making the demand curve more resilient. The same applies to supply. The longer the price, the higher the higher the more creative people bring supply to the market. It makes little sense to have a backyard ticking coop that costs thousands of dollars when eggs were $0.99 per dozen. But as egg prices are pushing through double digits (my local store sells a big $12 egg for $9), the relative prices of backyard sheds are now falling, and people are turning to their alternatives. The demand for eggs is increasingly elastic. It’s the same as supply. It’s the same as seeing people with huts selling and giving eggs to neighbors.
With price control in place, this process becomes much more difficult. The market is heading towards solutions. Price control slowed this process. Rather than ending the shortage and controlling inflation, Weber’s proposal changed the visible, invisible costs.
Update: Egg prices have been falling since I first wrote this piece. The price of a dozen eggs at my local store is currently (as of April 3rd) at $5.79. However, I will not change the original post as it supports the points that Drop is creating here.
