Bird Flu in Malaysia causing Egg Shortage and Price Hike

The article discusses the increase in egg prices in Malaysia due to bird flu affecting poultry, causing a shortage in egg supply. The market structure, demand and supply curves, and the implementation of a price ceiling are discussed. The government has set up a committee to investigate the egg price hike and possible cartel behavior in the market.

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ECN 60104
MICROECONOMICS

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Contents
Task 1.........................................................................................................................................3
Task 2.........................................................................................................................................4
Task 3.........................................................................................................................................6
Reference....................................................................................................................................8
Appendix....................................................................................................................................9
Bird flu in Malaysia behind egg shortage and price hike...........................................................9

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The article chosen for the study is related to the egg market of Malaysia. There are two
different agents in the egg market of Malaysia that are the customers and the poultry owners
who are the producers of the egg. The market is directly governed by the industry ministry of
the country. The main substance of the article is that the prices of eggs are on the rise in the
economy of Malaysia (Cowell, 2018). According to the article, the main reason for the
increase in the price is the production which has been low. The poultry owners have
experienced that the poultries are being affected by bird flu and hence they are having a tough
time to operate in the market. Laboratory tests have found out that a huge amount of eggs
being sold in the market are inflicted with influenza virus and hence are not fit to be sold in
the market. Therefore, the cost of selling new eggs in the market has increased for some of
the sellers and hence they have stopped selling eggs.
The concerned ministry which is domestic trade and consumers’ affair ministry has reported
that many of the sellers in the market have been affected with the low production. The
disease in the poultry has compelled them to close their shop and hence the production has
reduced by more than 70%. On the other hand, the demand for egg has not been affected due
to the disease of this poultry. The unchanged demand and the reducing supply for the eggs
have caused the prices to go up (Marcal, 2018). The market of egg in Malaysia is currently
experiencing an excess demand and it has been the main concern for the government. The
ministry has set up a committee to look into the matter of increasing price and supply side
investigation will be done before any action is taken from the side of the government.
The committee has anticipated that there must be some cartel in the egg market that is
increasing the price for eggs more than it should increase. The sellers are existing cooperating
with each other to keep the prices of the eggs high. The main aim of the committee is to find
out any non-competitive behaviour of the egg firms in the market which will then be reported
to the concerned authority before any action is taken by the government (Mankiw, 2016). As
per the statement of the committee, the existing sellers of the market are taking advantage of
excess demand to increase their profitability and hence the prices are increasing day by day.
First, the rising prices and the exact reason for rising prices needs to be found out and then
the government will intervene. It is expected that ceiling prices would be put in place for the
temporary reduction in the prices however, supply needs to be boosted again in order for the
market to be at its place again.

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The market for eggs in the Malaysian economy is a close example of a perfect competition
where the number of sellers and buyers are huge in number. The issue presented in the article
has relevance to a competitive market where the demand and the supply curves determine the
prices for the good (Llavador and Giamattei, 2017). The customers of the market demand
more eggs at lower prices of egg and the sellers supply more egg at higher prices. Therefore
the demand curve for the egg is a downward sloping curve while the supply curves for eggs
are an upward sloping curve. The prices for each unit of the egg are determined by the
interaction of the downward sloping demand curve and the upward sloping supply curve. The
equilibrium point as shown in the diagram determines the prices of each unit of eggs in the
market.
Figure 1: the demand and supply in the egg market
(Source: Holmgren, 2017)
Now there are some of the external factors that can shift both the supply and the demand
curve. The issue in the article states that due to bird flu the sellers in the market have stopped
selling eggs. Therefore, the supply curve shifts from s1 to s2 as shown in the figure. The new
equilibrium set by the interaction of demand and the s2 curve shows an equilibrium that lies

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above the initial equilibrium which in turn reflects a higher price for each of the egg units
(Kader, 2016). The figure also shows that the quantity sold in the market has reduced from Qe
to Q1 which has created a shortage in the economy. Thus, the prices of eggs have increased
and the quantity available for sale in the market is reduced and that has been the issue with
the egg market of Malaysia.
Another important concept relevant to the issue of the chosen article is the structure of the
market. The structure of the market talks about the number of sellers and the consumers along
with the control that each of them has over the prices. The initial market structure of the egg
market of Malaysia was a close example of a perfect competition where there was a huge
number of sellers and buyers in the market (Jacobson, 2016). None of the buyers or the
sellers had any control to set the price which was determined solely by the interaction of the
demand and the supply curve of the market. However, due to the reduction in the number of
sellers owing to the inability of providing adequate eggs in the market, few of the sellers
enjoyed more control over the prices of eggs. That means the structure of the market changed
drastically for a short period that gave huge power to existing sellers of the market. The new
market with fewer sellers of a homogenous good can be a close example of an oligopoly
where the power of the sellers over the prices of the product are more than a firm operating in
perfect competition. Therefore, the existing sellers of the market took the advantage to form a
cartel in order to maintain a high price in the wake of excessive demand in the market. The
existing sellers, setting the high prices for the egg were able to extract most of the consumers'
surplus from the market (Bosshardt and Chiang, 2018). The government is concerned as the
welfare of society as a whole has decreased due to the reduction in the number of sellers and
hence the production in the market. According to the theory, the movement from perfect
competition to an oligopolistic market creates a deadweight loss which reduces the overall
welfare of the society.
Last but the most important concept that has been talked about in the article is the price
ceiling. The government, in order to provide a temporary solution to the market, has decided
to use a price ceiling that will restrict the sellers to set the prices that high. Susetyo,
Timmermans and de Vries (2018) stated that a price ceiling below the equilibrium price of
the market is binding in nature. Therefore, the problem will be solved temporarily; however,
the excessive demand compared to the supply which has been another concern for the

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government will not be solved. Rather price ceiling will increase the shortage in the market
and not all the customers of the market will be able to buy eggs at that low price.
Figure 2: The implementation of a price ceiling in the egg market
(Source: Bedoya Maya, Ospina, and Sanchez, 2017)
Figure 2 depicts the price ceiling to be applied in the egg market of Malaysia. In this case, Pc
is the price ceiling set by the government below the equilibrium price. At this low price, the
customers demand more eggs and sellers are willing to sell a less number of eggs (Kolmar,
2017). Therefore, this creates an excess demand as shown by the red line in the figure.
Therefore the temporary solution thought out by the government to reduce the price would, in
fact, amplify the shortage in the short run until the supply side report is furnished by the
concerned committee.

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Figure 3: The changes in the market
(Source: Kolmar and Hoffmann, 2018)
The main issue presented in the article is the increase in the price of an egg in the Malaysian
market. The increase in the price has occurred due to the leftward shift in the supply curve as
shown by the diagram. The unchanged demand and the reduced supply resulted in a higher
price which is a concern for the government. In solving the problem the government is facing
another problem which is further amplifying the shortage in the market. However, that
measure of the ceiling the price is helpful for controlling the prices in the short run.

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Reference
Bedoya Maya, F., Ospina, M. and Sanchez, S., 2017. Evaluating classroom innovations for
motivation and learning: Principles of microeconomics specific course case.
Bosshardt, W. and Chiang, E.P., 2018. Evaluating the effect of online principles courses on
long-term outcomes. International Review of Economics Education.
Cowell, F., 2018. Microeconomics: principles and analysis. Oxford University Press.
Holmgren, M., 2017. From Continuous to Discrete: An Alternative Approach to Teaching
Consumer Choice. Journal of Economics Teaching, 2(1), pp.1-13.
Jacobson, N., 2016. Professor Aguas Principles of Microeconomics 2 May 2016 Summary
and Reflection Paper.
Kader, A.A., 2016. Debilitating and facilitating test anxiety and student motivation and
achievement in principles of microeconomics. International Review of Economics
Education, 23, pp.40-46.
Kolmar, M. and Hoffmann, M., 2018. Workbook for Principles of Microeconomics. Springer
International Publishing.
Kolmar, M., 2017. Principles of Microeconomics. Springer International Publishing.
Llavador, H. and Giamatti, M., 2017. Teaching microeconomic principles with smartphones–
lessons from classroom experiments with classEx (No. 1584).
Mankiw, N.G., 2016. Economics-Microeconomics-Principles of Microeconomics.
Marcal, L., 2018. Achievement Gaps in a Flipped, Microeconomics Principles
Course. Journal of Instructional Pedagogies, 21, pp.36-71.
Susetyo, C., Timmermans, H., and de Vries, B., 2018. Orthogonal strategy based computer-
mediated negotiation: Principles and example. Environment and Planning B: Urban
Analytics and City Science, p.2399808317748160.

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Appendix
Bird flu in Malaysia
behind egg shortage and
price hike
PUBLISHED
DEC 16, 2018, 5:00 AM SGT
FACEBOOKTWITTEREMAIL
IPOH • The increase in egg prices in Malaysia is because of bird
flu affecting poultry, Agriculture and Agro-based Industry
Minister Salahuddin Ayub said yesterday.
He said the bird flu is causing a shortage in egg supply, but
assured the public that this was temporary.
"My ministry is in discussions with the Domestic Trade and
Consumer Affairs Ministry (KPDNKK) on steps to contain the
pricing," he told reporters on the sidelines of Parti Amanah
Negara's national convention.
It was reported recently that many egg farmers are closing shop
due to soaring feed prices, and that egg production had dropped
by an estimated 70 per cent, compared with two years ago. With
demand exceeding supply, prices have risen.
Mr. Salahuddin said the issue will be settled soon and it was best
for the committee, which had been set up to investigate the egg
price hike, to first look into the issue of supply.
Asked if there is a contingency plan as Chinese New Year will be
celebrated in two months' time, he said the exact problems
causing the hike must be examined first.
"Once the committee has come up with a report, we will take the
necessary measures," he added.
The Malaysia Competition Commission (MyCC) recently said it is
working closely with KPDNKK to probe any possible price fixing

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and market manipulation by cartels, which had led to the hike in
chicken egg prices.
MyCC said in a statement last Thursday that it is looking into the
possibility of profiteering or anti-competitive behaviour among
market players.
THE STAR/ASIA NEWS NETWORK
A version of this article appeared in the print edition of The Sunday Times on December
16, 2018, with the headline 'Bird flu in Malaysia behind egg shortage and price
hike'. Print Edition | Subscribe
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