Question 1: The price rise is the result of the market attempting to establish a new equilibrium price. In figure 1, the supply changes for S0 to S1 as “producers scramble to meet new free-range laws”(Mannix 2016), which causes the supply curve to shift left, increasing the cost of producing eggs at each price. This increases the cost of eggs supplied at each price. Meanwhile, the demand curve shifts from D0 to D1 has changed “on the back of high beef prices which are encouraging people to switch proteins”(Mannix 2016) and according to Egg Farmers Australia “the new scientific consensus about links between eating eggs and better health outcomes”(Mannix 2016). The 3-4% increase in demands shifts the demand curve to the right, increasing the quantity of eggs demanded at each price. The price of eggs will have …show more content…
The effect of the price hike seemed to have little influence on the demand for eggs which would indicate the demand is inelastic. Moreover eggs are a perishable good that cannot be stored which demand for tends to be inelastic. Further evidence the demand for eggs is inelastic is that even though the price of eggs has increased; all the eggs supplied have been consumed leaving “supermarket shelves along the east coast that would usually stock eggs are bare” (Mannix 2016). This would indicate that revenue will have increased for egg producers and if price and revenue move in the same direction, the demand for the good is inelastic, which is expected as most food items are generally inelastic. ‘Price elasticity of demand’ = ‘percentage change in quantity demand’ ‘Percentage change in