Economic Analysis: The Market for Cage-Free Eggs in the USA

This case study provides an economic analysis of the cage-free egg market in the USA, examining the interplay of supply and demand determinants. It explores the rationale behind the increasing market demand for cage-free eggs, highlighting the influence of factors such as announcements from major retailers like McDonald's and consumer preferences for higher nutritional value. The study incorporates data from reliable sources and employs graphical representations to illustrate how changes in demand and supply affect the equilibrium price. It presents four different scenarios, demonstrating the impact of rising or decreasing demand and supply on market prices. The analysis emphasizes the role of consumer behavior, production practices, and government policies in shaping the market dynamics. The conclusion summarizes the key findings, emphasizing the significant influence of both supply and demand on the price level of cage-free eggs and anticipates the continued growth of this market segment.

Running head: ECONOMIC ANALYSIS OF THE MARKET FOR CAGE-FREE EGGS
Economic Analysis of the Market for Cage-Free Eggs
Name of the Student
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Author Note

1ECONOMIC ANALYSIS OF THE MARKET FOR CAGE-FREE EGGS
Abstract
This paper strives to analyse the causes behind the emerging market demand of the cage-free
eggs in the USA market. The introduction section explains the roles of the supply and demand
determinants in the identifying the equilibrium market price of the product. In the following
section, the paper mentions some reliable sources that helps in explaining the sudden change in
the price level of the cage-free eggs.

2ECONOMIC ANALYSIS OF THE MARKET FOR CAGE-FREE EGGS
Table of Contents
Introduction....................................................................................................................................3
Rationales behind the choice of commodity............................................................................3
Influential factors to determine and their impacts on the commodity’s price.....................3
Discussion.......................................................................................................................................4
Data.............................................................................................................................................4
Data analysis with Graphical representation..........................................................................6
Conclusion....................................................................................................................................10
References.....................................................................................................................................12

3ECONOMIC ANALYSIS OF THE MARKET FOR CAGE-FREE EGGS
Introduction
This paper is aimed at analyzing the economic activity to determine the price for a
particular commodity in the USA market. The supply and demand altogether is considered as a
price determinant of a product. In terms of the economic laws, an increase in price lowers the
demand of the commodity, whereas, escalates its supply level and vice-versa. The interaction of
both supply and demand yields market equilibrium price level of the commodity.
Rationales behind the choice of commodity
Referring to this study, the cage-free egg is considered as the best choice of the
commodity to analyze how the economic activity has influenced the sudden change in the
product’s price level. The cage-free egg is an evolving issue across the USA for the last couple
of years. A significant number of retailers and eateries have been decided to use completely
cage-free eggs within 2025 (Malone, & Lusk, 2016). However, the limited resources and
emerging demand overshoot the existing market supply. This results in the change in the
equilibrium price level of the certain product.
Influential factors to determine and their impacts on the commodity’s price
There are several number of demand and supply determinants reported to influence the
market price of the cage-free eggs. The recent announcement made by McDonald is considered
as one of the influencing factors for the excessive rise in the market demand of the product. The
company is one of the giant foodservice retailers in the USA. Recently, the company owner has
announced to buy more than 2 billion eggs annually in order to make food items using cage-free
eggs completely. This results in the rise in the demand over the existing supply capacity of the

4ECONOMIC ANALYSIS OF THE MARKET FOR CAGE-FREE EGGS
market. Further, the consumers have escalated the demand for this specific product due to higher
nutrition value compared to caged eggs (Exler et al., 2013). In contrast, current supply strength
can meet only 17% of the market demand. This huge difference is expected to change the
equilibrium price level of the particular commodity.
Discussion
In this section, this paper strives to examine how the market price of the commodity
changes as a consequence of the combined effect of market supply and demand.
Data
This study has been developed on the basis of following three reliable sources.
(Source: "Cage-Free Eggs Were Once Expected to Dominate the Egg Market", 2019)

5ECONOMIC ANALYSIS OF THE MARKET FOR CAGE-FREE EGGS
(Source: Bloomberg - Are you a robot?", 2019)
(Source: Gro-intelligence.com)

6ECONOMIC ANALYSIS OF THE MARKET FOR CAGE-FREE EGGS
Data analysis with Graphical representation
In this section, the paper incorporates some graphical analysis to relate the current market
status for the cage-free eggs. The term ‘cage-free’ stands for the eggs, which are not laid by
confined hens. Nonetheless, these hens are unable to access to the outdoors. In case of cage-free
system, enough place is provided for the hens to expand wings or roam around. They can access
the unlimited amount of food (Da Veiga et al., 2014). This results in the enhancement of the
nutrition level of the eggs. In contrast, the caged housing system asks for inadequate area to go
around the cage. Most importantly, the allocated space is merely equal to the size of a piece of
paper. Three different types of economic activities have been decided in the following section.
Instead of case size, cage-free eggs carries more environmental benefit and greater governmental
assistance (Wood, 2013). Local government has lowered the tariff rate for the cage-free egg
producers. Altogether, this has made the market demand to surge over the few couple of years.
There are various determinants expected to change the equilibrium price of the product (Parisi et
al., 2015). In the terms of economic law, the supply can also lead to the change in the commodity
prices. The following diagrams strive to explain four different cases to identify the change in
market price of the product. The horizontal axis measures quantity, whereas, vertical axis
measures the price of the commodity in every diagrams.
Case I: Change in demand:
In the case of figure 1, demand for cage-free increases owing to emerging market demand
of the product. Consumer wants to consume more as these eggs possess more nutrition value
compared to caged eggs. This in turn, influences the restaurant and foodservice retailers to shift
their purchase items from caged eggs to cage-free eggs (Sadler, Gilliland & Arku, 2013). There

7ECONOMIC ANALYSIS OF THE MARKET FOR CAGE-FREE EGGS
D0
D2
Q0 Quantity
Price
P1
P0
Q1
S0
are several number of renowned eateries wish to use eggs of cage-free hens while preparing their
dishes. They set a target 2025 as a target year for this entire transformation process.
Figure 1: Rising demand leads to increasing product price
Source: (Created by the author)
Figure 1 shows that rise in demand from D0 to D1 has enhanced the commodity price as the
supply acts as a constant factor. The policy makers must increase the market price to meet the
demand. In this way, both the price and supply get increase owing to meet the existing demand
(Ward, 2014). Therefore, price increase from P0 to P1 and quantity raises from Q0 to Q1.
In contrast, contraction in demand shrinkages the commodity price in the market. Due to
poor economic growth in the USA, native people refrain themselves from the purchase of the
products (Shields & Greger, 2013). In this context, the consumer can lower the demand owing to
budget constraint. This in turn, will lower the scale of demand as well as the quantity of the
product.

8ECONOMIC ANALYSIS OF THE MARKET FOR CAGE-FREE EGGS
D1
D0
Q1 Quantity
Price
P0
P1
Q0
S0
Figure 2: Decrease in demand lowers the price level
Source: (Created by the author)
This figure 2 emphasizes the impact of deteriorating demand on the price level of the product. As
demand decreases from D0 to D1 price level also gets lowered. As supply remains constant,
producers encounter with inventory issues. This excess supply causes market inventory to rise
and this encouraged them to lower the production level (van Horne, 2014). Therefore, price level
decrease from P0 to P1 in correspondence with the decrease in the quantity level from Q0 to Q1.
Case II: Change in supply:
Market supply plays a key role in determining the market price of a product. In this case,
data reveals that the number of egg suppliers are expected to change the item of eggs they are
producing currently. More than 70% of caged egg producers are going to produce cage-free eggs
instead of caged-eggs (Kralik et al., 2013). This change in the production process reflects the
emerging market demand of the product. The rise in supply increases the product’s availability in
the market. This in turn lowers the price level of the commodity.

9ECONOMIC ANALYSIS OF THE MARKET FOR CAGE-FREE EGGS
D0
Quantity
Price
P0
Q0
S0
S1
P1
Q1
Figure 3: Rise in supply lowers the price level
Source: (Created by the author)
Figure 3 delineates that increase in the supply level has lowered the price level. If supply surges
from S0 to S1 producers are likely to cause inventory as the market demand plays as a fixed factor.
Demand will be constant after a certain level. In this case, D0 is the constant, such that, demand
will no sooner will be changed. In the relation to the constant demand, supplier will lower the
price level to clear the inventory level (Thi Hong Nguyen, Wood & Wrigley, 2013). Therefore,
price declines from P0 to P1 to sell the excess quantity, such that, the difference of Q1 to Q0.
The market can face another case when supply decreases. Due to lack of resources and
stringent rules producers are compelled to lower the production level in the market (Agyeman &
McEntee, 2014). However, the market demand remains constant. Hence, price level must soar up
owing to meet the existing market demand. The consumer will have to pay higher prices due to
contraction in the market supply.

10ECONOMIC ANALYSIS OF THE MARKET FOR CAGE-FREE EGGS
D0
Quantity
Price
P1
Q1
S1
S0
P0
Q0
Figure 4: Contraction in supply upturns the price level
Source: (Created by the author)
In the figure 4, contraction in the supply level from S0 to S1 fails to meet the augmented demand
in the market. This results in the enhancement of the price level from P0 to P1 and contraction of
the quantity level of Q0 to Q1. In order to control the existing market demand and lack of
availability of commodity, the supplier surges the market price (Vijayan et al., 2014). In this
case, the producers are likely to obtain illegal profits as consumer are ready to pay the higher
price than the equilibrium level of price in the market. The government often intervenes in this
market to control the sudden increase in the price level of the commodity. The government levies
additional tax or increase the interest owing to control the emerging market demand.
Conclusion
In a concluding note, the supply as well as the demand of the product play a key role in
determining the price level of the cage-free eggs in the USA market. Owing to the announcement
of some giant eateries and rising concern of the health impact, market demand for the cage-free

11ECONOMIC ANALYSIS OF THE MARKET FOR CAGE-FREE EGGS
eggs shows an incremental impact on the supply side of the product. The USA food retail market
expects that supplier will soon to be reached the optimum level of the market in comparison with
the market demand. The major share of the egg market will be captured by the cage-free egg
producers by the year of 2025.