Very interesting Economics ....in days of rising fuel prices Can it WORK??

[Green_Always]

A man eats two eggs each morning for breakfast. *When he goes to the Grocery store he pays $2 a dozen. *Since a dozen eggs won't last a week he normally buys two dozens at a time. One day while buying eggs he notices that the price has risen to $3. The next time he buys groceries, eggs are $4 a dozen.*

When asked to explain the price of eggs the store owner says, "The price has gone up and I have to raise my price accordingly". This store buys 100 dozen eggs a day. *He checked around for a better price and all the distributors have raised their prices. The distributors have begun to buy from the huge egg farms. *The small egg farms have been driven out of business. *The huge egg farms sell 100,000 dozen eggs a day to distributors. *With no competition, they can set the price as they see fit. The distributors then have to raise their prices to the grocery stores. And on and on and on.*

As the man kept buying eggs the price kept going up. He saw the big egg trucks delivering 100 dozen eggs each day. Nothing changed there. * He checked out the huge egg farms and found they were selling 100,000 dozen eggs to the distributors daily. Nothing had changed but the price of eggs.*

Then week before Thanks Giving the price of eggs shot up to $8 a *dozen. Again *he asked the grocery owner why and was told, "Cakes and baking for the holiday". *The huge egg farmers know there will be a lot of baking going on and more eggs will be used. Hence, the price of eggs goes up. Expect the same thing at Christmas and other times when family cooking, baking, etc. happen. This pattern continues until the price of eggs is $ 10 a dozen. The man says, " There must be something we can do about the price of eggs".*

He starts talking to all the people in his town and they decide to stop buying *eggs. This didn't work because everyone needed eggs.*

Finally, the man suggested only buying what you need. *He ate 2 eggs a day. On the way home from work he would stop at the grocery and*buy two eggs. Everyone in town started buying 2 or 3 eggs a day.*

The grocery store owner began complaining that he had*too many eggs*in his cooler. *He told the distributor that he didn't need any eggs.*
Maybe wouldn't need any all week.*

The distributor had eggs piling up at his warehouse. *He told the huge egg farms that he didn't have any room for eggs would not need any for at least two weeks.*

At the egg farm, the chickens just kept on laying eggs. * To relieve the pressure, the huge egg farm told the distributor that they could buy the eggs at a lower price.*

The distributor said, " I don't have the room for *the %$&^*&% eggs even if they were free". * The distributor told the grocery store owner that he would lower the price of the eggs if the store would start buying
again.*

The grocery store owner said, "I don't have room for more eggs.*The customers *are only buying 2 or 3 eggs at a time. *Now if you were to drop the price of eggs back down to the original price, the customers
would start buying by the dozen again".*

The distributors sent that proposal to the huge egg farmers but the egg farmers liked the price they were getting for their eggs but, those chickens just kept on laying. *Finally, the egg farmers lowered the
price of their eggs. *But only a few cents.*

The customers still bought 2 or 3 eggs at a time. They said, "when the price of *eggs gets down to where it was before, we will start buying by the dozen."*

Slowly the*price of eggs started dropping. *The distributors had to slash their prices to make room for the eggs coming from the egg farmers. *

The egg farmers cut their prices because the distributors wouldn't buy at a higher price than they were selling eggs for. Anyway, they had full warehouses and wouldn't need eggs for quite a while. And those chickens kept on laying. Eventually, the egg farmers cut their prices because they were throwing away eggs they couldn't sell.*

The distributors started buying again because the eggs were priced to where the *stores could afford to sell them at the*lower price. And the customers starting buying by the dozen again.*

Now, transpose this analogy to the*gasoline industry.*

What if everyone only bought $20 worth of Gas each time they pulled to the pump? *The dealer's tanks would stay semi full all the time. *The dealers wouldn't have room for the gas coming from the huge tanks. *The tank farms wouldn't *have room for the petrol coming from the refining plants. And the refining plants wouldn't have room for the oil being off loaded from the huge tankers *coming from the oil fields.*

Just $20 each time you buy gas.*Don't fill up the tank of your car. You may have to stop for gas twice a week, but the price should come down.*

Think about it.*

Views / Comments Welcome.. !!!

[gc_on_demand]

At the egg farm, the chickens just kept on laying eggs.

I think Oil Field won't be like Chicken unless you digg then they will not throw up oil.

At worst if they see less demand they will easy on drilling oil.. Valid args ?

[eb3_nepa]

Slight difference.

1) The oil example is on a MUCH bigger global scale.
2) The total amount of oil is a finite amount and not infinite like eggs.
3) Lastly, the producers of oil in the Middle east, CAN actually stop pumping or pump less if they wanted to. You cant stop chickens from laying eggs (i guess you could if you stopped all mating).

But you do have a reasonable point there. As consumers, we could bring the prices lower.

[mirage]

I think your anology is wrong, because if you buy 2 eggs everyday than instead of 10 people buying 1 dozen eggs you'll have 60 people buying 2 eggs each but at the end of the day consumption will be same. Same for gasolene instead of 10 cars filling 10 Gallons there'll be 40 Cars filling 2.5 gallons. It is the consumption that is driving the price not the amount you buy everytime...

[gcisadawg]

In your analysis, the store buys 100 dozen eggs a day. Assume over 90% are sold on the same day giving a 10% room for damages/unsold/expired. That means about 90 different ppl are buying each day ( assuming everyone buys only one dozen at a time). Those 90 ppl would come back only on 5th or 6th day after their supply runs out (Each eats 2 a day). That means the store has 540 different customers buying a dozen each. ( 90 per day * 6 days).

If those 540 ppl buys two eggs a day, then they would come back every day. That means, the store is selling 540*2 = 1080 eggs which is 90 dozen.. which is the status quo accounting for 10% damages/unsold/expired.

The real solution is, the man should eat only one egg a day as opposed to two eggs a day. That should trigger all that you mentioned.


Thanks,
gcisadawg

[Abhinaym]

Actually the additional time and fuel you spend to go fill up your gas tank more frequently, will increase your expenditure in the long run.

Hence this becomes a case where it is not in your interest that you fill up more frequently (raises costs), but you'd wish everybody else would (lowers costs).

[cpbaherwani]

How much gas did the guy spend to buy just 2 eggs from the store everyday?

As reported on news channels, buy your week's groceries at once to save on trips to the grocery stores.

[arian2002]

I doubt if this analogy holds true for oil. Oil production as well as refining can be controlled as per demand unlike egg laying. What do you say guys?

[gjoe]

They need to mate only if they want to produce fertilized eggs which can be used to htach.

Originally Posted by eb3_nepa

Slight difference.

1) The oil example is on a MUCH bigger global scale.
2) The total amount of oil is a finite amount and not infinite like eggs.
3) Lastly, the producers of oil in the Middle east, CAN actually stop pumping or pump less if they wanted to. You cant stop chickens from laying eggs (i guess you could if you stopped all mating).

But you do have a reasonable point there. As consumers, we could bring the prices lower.

[rb_248]

So you are telling me to buy 3 eggs every day instead of 21 eggs every week. I dont think this works. Demand is still the same for the week, so supply will be the same for the week and there will be no inventory problems.

I think this is a waste of time stopping at the grocery store every day and stopping at the gas station day.

I think the demand goes down when you consume less # of eggs or less gallons of gas.

[gjoe]

Oil price can be brough down if we follow things like this

1) Build good public transportation
2) Build more cities were people can migrate to live and work
3) Stop wrapping each toothprick in a seperate cover
4) Stop wrapping each teaspoon of sugar, slat or pepper
5) Reduce calories in the fast food which would help you and also save the environment from methane pollution
6) Stop buying bottled water. Bottled water was more expensive than gas for atleast a decade. It takes so much of energy to move the water around before it reaches you
............

and many more like this.

Originally Posted by arian2002

I doubt if this analogy holds true for oil. Oil production as well as refining can be controlled as per demand unlike egg laying. What do you say guys?

[hariswaminathan]

Originally Posted by arian2002

I doubt if this analogy holds true for oil. Oil production as well as refining can be controlled as per demand unlike egg laying. What do you say guys?

What you want you want to do is control oil speculation - not really the production/refining.
The actual price of oil (and stupid increases) are based on trading speculation of what the predicted demand is. You are today seeing a fall in prices from $140 to $120 because traders are speculating that demand is dropping based on US consumer behaviour.

So this theory could essentially work if traders repond to drop in demand.

[rajeshalex]

Its good to read this article and makes more logical for perishable/food industry.
Egg is a perishable item and gas is not like that. Even if nobody buys gas I think it will be there in the tank .

[hopefulgc]

I think SunnySurya has a point based on "postponement of need"
The example is analogous to maintaining Just In Time inventory which ultimately forces the entire supply chain (man-distributor-huge egg farm) to maintain lower inventories. It could help prune the prices a little bit.

But as long as the throughput remains the same, the drop in prices will be only be temporary. Infact, after the drop, the prices are likely to bounce much higher because the price drop generates the demand which cannot be met by the wafer thin intventory maintained by the supply chain.

On a side note:
Did we figure out what came first? "chicken or the egg"

[NKR]

Originally Posted by hopefulgc

On a side note:
Did we figure out what came first? "chicken or the egg"

It is like an EB3 GC applicant from India asking “when will my PD become current?”. The answer is “nobody knows”.