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Supply & Demand, Price Elasticity, Price Ceiling

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Assignment Two: Article Analysis
SP5, 2016
1. This assignment is due in week 8 and is worth 25% of your overall assessment.
2. You need to submit this assignment via Learnonline Gradebook.
3. The word limit is 1000 words.
4. You are expected to provide adequate referencing. Failure to cite properly is evidence of academic misconduct and will result in marks being deducted. Please check this website for proper way of referencing:
5. If you submit before 11pm, Sep 17 (1 day before the due date), you will receive 10% of your final mark for this assignment as bonus for early submission.
Read the article titled “Free-range egg shortage in Australia set to last two months” (by Liam Mannix, Source: The Sydney Morning Herald, Date: June 7, 2016) and provide the answers to the following questions.
1. Assuming eggs are produced in a competitive market, use demand and supply models to explain and illustrate why the price of free-range eggs is expected to rise. Be sure to clearly explain any assumptions you make and articulate the determinants that lead to the change (7 marks).
2. Drawing on the influences (determinants) of price elasticity of demand, explaining whether the demand for free-range eggs is elastic or inelastic. Illustrate the effect of price rise on the total revenue of an egg producer who has already met all regulatory requirements for producing free-range eggs. (8 marks)
3. Considering the free range egg market in SA, assume that the state government has decided to intervene and introduce a ceiling on prices. Explain and illustrate the likely impact on the market for free range eggs in both the short-term and the long-term of such a scheme, and discuss whether the outcome is efficient from the perspective of consumer�s and producer�s surplus. (7 marks)
Your assignment will also be assessed on how effectively you can communicate with the reader; i.e. how well you have presented your arguments and ensured your analysis is logical and consistent. Consequently, 3 marks will be awarded for effective writing including proper grammar, referencing and formatting. Importantly, make sure you use appropriate diagrams in your analysis. Please check the FAQs for Assignment 3 if you have further questions on this assignment.

Free-range egg shortage in Australia set to last two months
Liam Mannix
Published: June 7, 2016
Australia is set to suffer through an egg shortage for the next two months, as producers scramble to meet new free-range laws, with Melbourne and Sydney the worst-hit cities.
Supermarket shelves along the east coast that would usually stock eggs are bare, with many carrying large apology notices.
Australian egg consumption is up 3-4 per cent, which normally would be great news for farmers. But uncertainty around new free-range laws means the industry isn’t willing to invest in new capacity to meet the demand.
In March, the federal government introduced a legal definition of “free-range”, which limits producers to one chicken per square metre and requires chickens to have “meaningful and regular access” to the outdoors.
Other rules, including the size and design of barns, are still being worked on. Until they are finalised, farmers aren’t building new barns to house more hens to meet the growing demand.
Free-range hens lay less frequently in the winter months, exacerbating the problem. Consumers can expect this problem to only get worse in the future if current national trends toward free-range don’t change.
The shortage only affects free-range eggs, with cage-egg production still at normal levels. But the shortage of free-range eggs is driving consumers to buy cage-eggs, leaving supermarket shelves bare.
Three things causing the egg shortage:
1. Australians are eating more eggs
National egg consumption is up by between 3.5 to 4 per cent annually, on the back of high beef prices which are encouraging people to switch proteins.
The new scientific consensus about links between eating eggs and better health outcomes is also driving the increase in consumption, Egg Farmers Australia says.
In addition, Australians are eating more free-range eggs – 48 per cent of eggs sold in Australia are labelled free-range, according to Egg Farmers Australia. If that trend continues, more eggs are going to be laid outdoors, resulting in a bigger supply-drop during winter every year.
2. Shorter, darker winter days cause hens to lay fewer eggs
This is a hormonal cycle that hits industry production in winter every year.
It has been exacerbated this year because there are now more free-range producers than cage-egg producers.
Hens that live outside are more affected by seasonal changes, whereas hens in cages can be manipulated to lay all the time using artificial light.
3. Investment in new hatcheries is down
The government established a new national definition of “free range” in March, and is currently working to finalise full standards for the industry.
The standard’s main requirement is for there to be no more than 10,000 hens per hectare. Producers can stock more, but they won’t be able to call their eggs free-range.
But the standard, when finished, is going to contain a lot of other requirements for farmers, including how big the doors in their barns must be, to allow chickens to get out. Some farmers have faced criticism in the past for giving hens access to the outdoors, but making barn doors so small that only a small number can actually get outside.
Normally, if there was a significant spike in egg demand, producers would be quickly investing in new hatcheries to cater to increased egg appetites. But the uncertainty about just what is going to be in the standard means most producers are holding off.
At the same time, many existing producers are having to spend time and money modifying existing farms to meet what they expect the new standards to be, and that’s affecting production as well.

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