Consider the market for eggs. for each of the events listed here, identify which of the factors will affect supply and which will affect demand for eggs.
a) the price of grain that is fed to hens falls
b) the price of bacon falls.
c) a new study is released that indicates that eating eggs is hazardous to one's health.
d) the number of egg-producing farms falls.
e) this weekend is the easter holiday.
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Of these options, B, C, and E would affect demand while the other two options would affect supply. To understand why this is so, let us think about the meaning of supply and demand. Supply is the amount of eggs (in this case) that producers will be willing and able to sell at a given price. Demand is the amount of eggs that consumers will be willing and able to buy at a given price.
When the price of grain that is fed to hens falls, it becomes cheaper to produce eggs. When it becomes cheaper to produce eggs, the supply of eggs increases because it is more profitable to produce them. When the number of egg-producing farms falls, the amount of eggs produced will, all other things being equal, fall. So, both of these factors impact supply rather than demand.
When the price of bacon falls, demand for eggs will go up. This is because (we are assuming) people tend to eat bacon and eggs together (they are called “complementary goods”). If bacon is cheaper, people will buy more of it and will need to buy more eggs to go along with the bacon.
By contrast, if studies indicate that eggs are bad for you, people will not want to eat eggs as often. This will reduce the amount of eggs that people are willing and able to buy. This is known as “consumer tastes.” Finally, if this weekend is Easter, more people will buy eggs because they need them to dye for Easter. This, too, is consumer tastes.
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