The extreme reduction in the supply of eggs as a result of widespread incidences of avian flu did not cause any shortages of eggs, no queuing or waiting lines, no widespread accusations of cronyism. [see this from the NYTimes, which possibly confuses a reduction of the quantity demanded with a drop in demand but which otherwise is quite informative].
Here's the scenario as it unfolded:
- Lots of birds contracted avian flu and were killed.
- the supply of eggs shifted to the left (a reduction in supply)
- The short-term supply curve and the short-term demand curve are both pretty steep (price inelastic at relevant prices), and so the price of eggs more than doubled as a result of the reduction in supply.
- Over time, the higher price induced buyers to reconsider their purchasing habits, to look for substitutes. I.e., as with most products, the longer-term demand curve is more price elastic than is the short-term demand curve.
- As the demand curve rotated counter-clockwise (going from short-term to longer-term), the equilibrium price of eggs declined a bit (more than 13%, according to the article).
The real take-away from this experience is that the price system works. When the supply of eggs declined, the price system rationed the available eggs to those who valued them most, i.e. those who were most willing to pay higher prices.
Contrast what happened with eggs and egg prices in the US with what would have happened had this occurred in Venezuela or any other country where the gubmnt intervenes in price-setting. Even if the bureaucrats had wanted to use prices to help ration the eggs, they would have responded slowly and shortages would have developed at the artificially low prices.
The smooth functioning of the price system as it was used to allocate eggs should be held up as one of a multitude of examples of how markets work.
Pedantic addendum:
I always tell my students that it is meaningless to talk about "shortage". They must talk about a shortage at a certain price instead. The reason is that a shortage can be eliminated by letting the price rise enough to reduce the quantity demanded and increase the quantity supplied. That is exactly what happened in the market for eggs.
If the price of eggs had been fixed, there would have been shortages at the fixed price. But because the prices were free to fluctuate, there were no times when the quantity demanded exceeded the quantity supplied at the equilibrium price.