Demand and supply for eggs free essay sample

Introduction Demand and supply is one of the most essential fundamental concepts of economics and it controls the behavior of market economy. Purpose of assignment is to study the reasons for increase in price of egg over the period. Egg price at markets may be affected by many factors related to demand and supply. Article says that the main cause for the price increase attributed to increases in price of inputs, especially in feed prices. In order to elaborate the topic, economic models/concepts such as price elasticity of demand, income elasticity of demand and cross elasticity of demand are being used. These models will give a clear explanation about how the demand has changed in different situations. However, it is required to study all factors those are affecting to demand and supply in order to obtain a clear understanding about the market. 2. How the prices of egg get increase in the market? According to prices listed on the National Egg Coordination Committee (NECC) website, the wholesale rates of eggs have gone up by nearly 47% in the last five years. Egg prices could increase either due to increase in demand for eggs or decrease in supply of eggs. Following graphs will further explain effects on the price due to changes in demand and supply. As shown in figure 1 increase in demand from D-D1 leads to increase in the quantity and as well as the price and in figure 2 it shows decrease in supply from S-S1 leads to decrease the quantity and increase the prices of eggs. 3. Supply factors Supply means the quantity of a product that a producer is  willing and able to supply  onto the market  at a given price in a given period of time. According to the content of the article egg farmers find it difficult to supply their products at a lower price due to various reasons. Major reason for increase in price of egg is increasing price of feed. â€Å"The feed for hens mainly consists of maize, soya, sunflower, maize bran, fishmeal. Prices of those items have been rising by around 25 to 30% annually†. Due to this situation farmers will have to bare a high cost and therefore their profits are likely to go down at a higher rate. There may be other factors which have led to increase prices of eggs such as increase in overheads such as administration cost and losses for deaths of laying hens due to diseases like bird flu and also lack of protection from government for poultry products. In order to increase the supply and control the cost of production government can give subsidies to farmers and also remove taxes imposed on eggs and other products which affect prices of eggs. However, increased market price of eggs encourages new farmers to enter the market and supply will help to reduce the market price in the long run. Nevertheless some farmers may leave the industry for it does not generate more profits due to high production cost. We are getting at Rs 4. 50 per egg and we are selling it at Rs. 5.00 As egg is a primary product, therefor supply cannot be increased in a shorter period of time. Due to high cost on inputs new firms may be reluctant to enter the market. 4. Demand factors Demand  is the quantity of a good or service that consumers are  willing and able to buy  at a  given price in a given time period. Demand may change due to various reasons such as purchasing power, prices of substitutes, prices of complementary products, income level of peop le, changes in consumption patterns and taste, population factors and advertising by retailers. .Price elasticity of demand for eggs Price elasticity of demand measures the responsiveness of the quantity demanded of a good or service to a  change in its price. During the month of December demand is likely to be inelastic for eggs as it’s an essential ingredient in Christmas goodies from puddings to cakes. Demand is inelastic when the percentage change in quantity demanded is less than the percentage change in price. â€Å"Prices of eggs have seen an increase of 30% as compared to the rates prevalent during the month of December last year. † As mentioned in the article average wholesale price of 100 eggs was around Rs. 225. 27 in 2009 it has increased to Rs. 331. 80 at the end of the current year. Due to inelasticity of demand, suppliers are able to gain larger income by increasing prices of eggs. It is shown in the diagram below. However, this situation is likely to change during other months of the year. People may reduce the demand if the prices are too high and they will switch into other substitute goods such as fish, meat or imported eggs if their prices are lower than domestic eggs. Therefore eggs tend to have an elastic and inelastic demand during different seasons. .2 Income elasticity of demand Income elasticity of demand measures the responsiveness of quantity demanded to a change in income. Product like an egg tends to be a normal good as the demand does not increase due to the change in income. Consumers purchase this product only when it is necessary therefore YED is positive but less than one. Increasing prices during the month of December may affect the disposable income of consumers. .3 Cross elasticity of demand Cross elasticity of demand measures the responsiveness of the  demand  for a  good  to a change in the price of another good. With cross price elasticity we make an important distinction between substitute products and complementary goods. It is hard to identify close substitutes for eggs. Positive XED shows substitute goods. As substitutes we can show fish, meat and other types of eggs (goose, duck and bantam). Negative XED explains complementary products for eggs. There are many food products which eggs are used as an input.Eg:-cakes, puddings. Following shows a relationship between two complementary goods. It shows increase in the price of good Y leads to decrease in demand for good X. 5. Other factors lead to increase/decrease demand. Demand for eggs may change due to consumer taste. Due to health issues like cholesterol and issues like bird flu lead to reduce the demand for eggs. Rapid increase in population in India tends to increase demand and more low and middle incom e people tend to consume more eggs and therefore the demand for eggs increase. More over advertising by retailers persuade people to buy eggs without making them move into other substitute goods and these lead to increase/decrease demand for eggs. 6. Conclusion Taking into consideration all the above information we can identify that many factors are affecting the price of eggs. Some factors offset results of the other and mostly cost of feed had led to increase in cost of eggs. However, this could reduce by providing subsidies to farmers and other incentives in order to increase the output and reduce the cost.