Monday, November 26, 2012

Farmer's Market Disequilibrium

At my local farmer's market my wife and I love to buy eggs. Alas our favorite eggs are often sold out by 915 for a market open from 9am-2pm and I have seen similar situations at other markets. So as an economist I wondered if the eggs always sold out why would the farmer not just raise her prices as economic theory predicts would happen with a shortage. I spoke with my favorite egg seller and she told me a great story of another farmer at a different market.

He always sold his eggs for $5 a dozen unless you had exact change in which case it was $4. That was how much he hated making changing.

My favorite egg seller said the she also hated making change, so maybe she could sell all of her eggs for $5.25 or $5.50 but that's a lot of change to deal with. She thought about selling half dozens for $3 each (or $6 a dozen), but the cost of a 6 egg carton is substantially more than a 12 egg carton.

She is also planning on increasing her supply, since she easily sells out. Usually econ 101 would teach us that the farmer would reduce supply at a lower price.

She does want to raise her prices and probably will soon, but she doesn't want to raise prices as she would feel bad for her customers (they don't teach you that in econ 101).

So if you see $6 eggs next week at the farmer's market you can blame me or the invisible hand.

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