Introduction Demand refers to how much quantity of a product or service is desired by buyers.

The quantity demanded is the amount of a product people are willing to buy at a certain price. The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The chart below shows that the curve is a downward slope. Demand Curve A, B and C are points on the demand curve. Each point on the curve reflects a direct correlation between quantity demanded (Q) and price (P). So, at point A, the quantity demanded will be Q1 and the price will be P1, and so on. The demand relationship curve illustrates the negative relationship between price and quantity demanded. The higher the price of a good the lower the quantity demanded (A), and the lower the price, the more the good will be in demand (C). Quantity

Price
A

P1 P2 P3

B C

Q1

Q2

Q3

Besides that, supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The law of supply demonstrates the quantities that will be sold at a certain price. This means that the higher the price, the higher the quantity supplied. Producers supply more at a higher price because selling a higher quantity at a higher price increases revenue. Supply Curve Price P1 P2 P3
C B A

A, B and C are points on the supply curve. Each point on the curve reflects a direct correlation between quantity supplied (Q) and price (P). At point B, the quantity supplied will be Q2 and the price will be P2, and so on.

Q1

Q2

Q3

Quantity

Elasticity refers to the degree of responsiveness of one variable to another. A simple way to see the degree of responsiveness is simply to look at the slope. A flatter demand curve represents a greater degree of responsiveness (for a supply or demand curve), as shown in the below graphs: the flatter demand curve produces a larger change in quantity for the same change in price.

Demand Curve Price P1 P2

D

Demand Curve Price

Quantity

Quantity

Summary In October 26, 2012, there was an issue on the increases on the price of eggs in Malaysia. Based on the article from The Star, the egg producers will gain from higher price of egg because the price of egg was set lower than the production cost. Industry players could hardly maintain costs at the previous prices. Competition in the segment led to a surplus of egg supply which in turn kept the prices low for many months. Farm's Best Bhd managing director, Fong said that egg was a commodity and egg producers were price-takers who had no say in determining the prices but noted that efficient producers should be able to make ends meet. The commodity market has its volatility but the additional culling will not have any impact in the supply of eggs in the market. There was no shortage of egg supply resulting from the increased culling. The eggs still available when walk into the sundry shop, grocery store or supermarkets. However, a bank-backed analyst, who covers the consumer industry, said that culling was done to keep production costs low as old hens have lower productivity. The oversupply of eggs and high prices of corn and soybean due to the draught in the United States had pressured margins for egg producers and the impact on the earnings for egg producers depends on how long the stockfeed prices stay at high levels. Egg prices were cyclical as egg production costs were in tandem with price movements of commodities, namely soybean and corn and the earnings also come from marine products so it might not be the same for pure players. Discussion and use of diagrams Price of eggs increase will benefit the producers. However, major consumers are not impacted on the price increase as they are willing to accept the cost at the moment. If the situation continue for a few months, there is possibility that they will spread the cost to the end consumers. Before that, the price hike by two sen per egg started early due to a nationwide shortage of eggs following the over-culling of old layer hens by farmers to keep production costs low. Some five million old layer hens have been culled to keep down production costs, causing a nationwide shortage of eggs and a two sen increase in their price. The shortage is 5% in an industry made up of 25 million layer hens which produce 22 million eggs per day. Stockfeed accounts for at least 80% of production costs, according to farmers. The cause of egg price to increase is due to the increase of price of corn which is imported from the United States. Based on Federation of Livestock Farmers' Associations of Malaysia advisor, Datuk Fong Kok Yong point of view, high prices of corn and soybean was due to the drought in the United States recently had forced farmers to cull more old layer hens. To illustrate the situation, the diagram below indicate the increase in price due to shortage of supply while the demand remain the same. The previous price of egg was 29.0 cents per egg (P1) and currently the price of egg is 31.0 per egg (P2). The price change from (P1) to (P2) with quantity demanded remain the same (Q1&Q2) and the supply curve will shift leftward. This occurs due to shortage of supply. A decrease in supply typically causes an increase in the equilibrium price and a decrease in the equilibrium quantity. An increase in demand typically causes an increase in the equilibrium price and an increase in the equilibrium quantity. Thus, the decrease in supply and increase in demand are both contributing to the increase in the equilibrium price. Since the supply shift and demand shift are trying to push the equilibrium quantity in opposite directions, the overall effect on the equilibrium quantity will depend on which effect is larger.

Price P1 P2

Supply curve 2

Demand curve 2
Supply curve 1 Demand Curve 1

Q1&Q2

Quantity

Even though there is an increase on the price, the quantity demanded remains the same for the time being as the major consumers are willing to absorb the cost due to minimal impact on the overall production costs. This situation will change if the producers are unable to sustain their production cost anymore. In the conclusion, there is no sudden impact on the increase of the price but if it extend, there is possibility the end consumers will feel the heat in the price of the food. If that happens, there could be changes in quantity demanded and the egg producers may have to find other alternatives for imported supplies for the chicken.