Wednesday, April 2, 2014

An "eggs-elent" article to teach various components of Demand.

A very short article in Quartz regarding the decline in the consumption of eggs in the US and how it can help teach the basics of Demand.

If teaching and/or learning about the "Demand" it identifies several key concepts relating to the difference between a change in quantity demanded vs a change in demand.  This is the bane of existence for every student and teacher of economics! :) There is also a bonus example of the difference between and Normal Good and an Inferior Good.  Good times ahead!! Read on.  :)
Americans once ate nearly twice as many eggs as they do today
1. They’re more eggspensive…
“Egg consumption is affected not only by the price of eggs, which has been rising, but also the price of competing protein products, like meat, which have been falling."
When the price of eggs INCREASES the Quantity Demanded for Eggs DECREASES.  This conforms to the Law of Demand, which suggests that the price of a good and the quantity demanded are INVERSELY related to each other.  A price change results in a movement ALONG the market demand curve (up and to the LEFT or Down and the RIGHT).  If the income you spend on a good is fixed and the price increases your money has less purchasing power and your quantity demanded for a good DECREASES.  If price decreases, your money has more purchasing power and your quantity demanded for a good INCREASES. This is known as the "income effect" and helps explain why a demand curve is downward sloping.

The second part of the quote suggests a "substitution effect" in the market for eggs where the prices of related/substitute goods have an affect on the market for eggs.  As the price of eggs increases the quantity demanded for eggs decreases (movement ALONG the demand curve) because there are viable substitutes available, other proteins in a variety of meats.  DO NOT confuse the difference between the two (Substitution Effect vs Presence of Substitutes)!!
2. …they got caught up in health scares… 
“The major factors behind egg consumption trends are consumer preference factors, in particular, concerns over the cholesterol content of eggs and the risk of coronary heart disease and stroke,” the US International Trade Commission noted in a 1999 report
One of the determinants of demand OTHER THAN PRICE that will SHIFT a market demand curve is "a Change in Consumer Preferences". The change could be positive which would cause consumers to, at every given price, INCREASE their quantity demanded relative to before the change in preference.  This would shift the market demand curve to the RIGHT indicating an INCREASE in demand.

However, the change noted above is negative, suggesting the quantity demanded is LESS than it was before at that price.  This would shift the market demand curve to the LEFT, indicating a DECREASE in demand.

Lastly, there is an example for a lesson on the difference between "Normal" and "Inferior" goods.
3… and people make more money. 
When people get richer, they tend to consume fewer eggs, according to the US International Trade CommissionAmericans are a good deal richer than they were in decades past—the median US household makes roughly 19% more than it did back in 1967, according to US Census data.
With a "Normal Good" an increase in income will increase the quantity demanded for a good. It becomes more desirable as you make more money.  Give me MORE of this good at a given price!

This suggests you might be substituting AWAY from another good that becomes less desirable as you make more money---that would be an "Inferior Good". Give me LESS of this good at a given price!

I hope this helps you understand some of the more difficult concepts surrounding Demand Curve analysis.

Let me know if it works for you! :)

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