Korean Egg Market Analysis: South Korea Battles- Essay Writing Assignment Help

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Essay Writing Assignment Help:

Task: 1.1 Article Summary The news article “Eggs in Short Supply as South Korea Battles Worst Bird Flu Outbreak”, written by Jane Chung for Reuters News on 4th of January 2017, underpins the substantial change towards the egg market in South Korea. Eggs are an integral part and one of the focal ingredients in numerous Korean dishes and any change in its market would have adverse effects towards the Korean community. This was reinforced when an outbreak of the avian influenza spread throughout the entire nation, significantly decreasing Korea’s poultry population. The article states that about 12.2% of South Korea’s poultry stock (approximately 20 million birds) have been culled to control the outbreak, and most of the birds are egg-laying hens. As a result, there had been a surge in regards to the price of eggs. Ever since the outbreak began on November 2016, there had been a 25% increase in the average retail price of 30 eggs now amounting to 6,781 won ($5.68USD). The article also looked at the economic outcome this brought to both the Korean producers and consumers (Chung 2017). 1.2 Essay Overview This essay aims to explore the backstory of events that are transpiring in the Korean egg market, using applicable microeconomic concepts and theories to discuss the aforesaid situation. In this article, the relevant concept of demand and supply is evident, and this paper analyses the implications that this concept brought upon consumers and producers. Moreover, the viral outbreak discussed would cause a shortage of supply of eggs disrupting market equilibrium, in which this paper aims to explore the theory behind these aspects. Furthermore, elasticity and total revenue would also be discussed and how the shortage and corresponding chang. As mentioned earlier, there are many variables that are non-price related that can influence market demand such as income, prices of related goods, population and demographics, consumer tastes and preferences, expected future prices, etc. (Hubbard et al. 2015, ch.2). In relation to the article, however, the factor that is briefly brought up is the factor of tastes, due to the change of season. From the article, it has been stated that Koreans usually eat more eggs in the winter. During January, in which the article was published, it was winter in South Korea, leading to an increase in demand of eggs. Diagram 1.0 Demand increase of eggs Moreover, the article gave a direct focus on the supply side of the market. Hence it is vital to discuss the relevancy of this side of the market, and its central relationship with the shift in demand. In this article, the supply of eggs was significantly diminished due to the widespread outbreak of the avian influenza. As a result, producers (farmers) had no choice to but to cull approximately 20 million birds to control the outbreak. Most of those 20 million were egglaying hens. Due to this incidence, supply total of eggs decreased by a staggering number of 12.2% (Chung 2017). The determinant here is also a non-price related factor in which would shift the supply curve to the left due to the reduced number of eggs. The relationship between demand and supply is evident in this article in which it presents two factors that have shifted both the supply and demand curves. With two non-price related variables that have changed, the market would be at a new equilibrium to create the optimal benefits for both consumers and sellers (Hayes 2017). As shown in the diagram, the average retail price of eggs would rise and as stated in the article, there was a 25% increase to the average retail price of 30 eggs amounting to 6,781 won ($5.68 USD) – the highest market price in more than three years. The application of the concept of shortages can also be used in this article. Due to the hard fall of the supply of eggs, and demand for eggs in South Korea are generally higher at this time of season, a shortage is created. A shortage is defined as a situation in which the quantity demanded is greater than the quantity supplied (Brennan 2017a). By substantially increasing the market price of eggs, there would be a reduction of a number of consumers that are willing to buy the good. From the article, sellers also tried to impose a limit to how many eggs a consumer can buy to one tray each for customer. These are two ways to eliminate shortage and return to equilibrium. 2.2 Elasticity and Total Revenue Elasticity demand is another fundamental concept in the world of economics and accordingly, the price elasticity of demand (PEd) is defined as the responsiveness of the quantity demanded to a change in price (Brennan 2017b). It can be calculated using the following formula: Price elasticity of demand (PEd) = % ?????? ?? ???????? ???????? % ?????? ?? ????? From using this formula, we acquire a negative coefficient as a result. However, in comparing elasticities, the negative value is often dropped and the coefficient’s absolute value is used. If the PEd is less than 1, the demand is inelastic. On the other hand, if it is greater than 1, the demand is elastic. Despite the article giving the percentage change in price, it does not give the exact figure for the change in quantity demanded. Therefore, there is not enough information for PEd to be calculated, however, assumptions can be made about the elasticity of eggs in Korea. One of the determinants of the price elasticity of demand is the availability of close substitutes. If a product has more substitutes available, it will have more of an elastic demand; vice versa (Brennan 2017b). Since eggs are products with little option for substitution and it is relatively low cost, they can be seen as inelastic. In this case, customers would still be willing to pay high prices due to its necessity for cooking purposes (Andreyeva, Long and Brownell 2010, p. 218). Elasticity is important for suppliers because it allows them to calculate changes in price that will affect their total revenue. Total revenue is defined as the total amount of funds received by a seller of a good or service, and is calculated by multiplying the price per unit by the number of units sold (Brennan 2017b). Due to its inelasticity, an increase in the price of eggs would only lead to a small decrease in quantity demanded. In an economic standpoint, the total revenue of egg sellers would rise. 2.3 Consumer and Producer Surplus Consumer surplus is defined as the difference between the highest price a consumer is willing to pay and the actual price paid. It is represented by the area below the demand curve and above the market price. Producer surplus on the other hand, is the difference between the lowest price a firm is willing to accept and the price it actually receives. It is represented by the area above the supply curve and below the market price (Brennan 2017c). Due to the higher demand for eggs due to the change in season, and the influenza causing a massive reduction in supply of eggs, both the consumer’s and producer’s surpluses have changed. As shown in the above diagram, the consumer’s surplus had decreased by the area from A, C, F, G to areas A and B. The higher price in this case may also be less beneficial to producers, decreasing supplier surplus from area H to areas C and D. 3.0 Conclusions The viral bird epidemic of avian influenza that nationally spread in South Korea has extensively placed big pressure in the economy of the egg market. With millions of henlaying chickens culled to control the outbreak, the supply of eggs has significantly declined, greatly impacting the market price of eggs. With soaring egg prices, alongside the increased demand of eggs during the winter season, these factors have exerted higher pressure on consumers due to the reduced consumer surplus as was discussed in this paper. As an inelastic good, consumers would still be willing to pay the product despite its currently high market price. Due to the central factor that it is not a product that can be easily substituted by another product, it can be seen as a necessity to every Korean household. Before the supply of eggs go back to normal, there is a time variable before this happens. Farmers cannot simply produce artificial eggs, therefore, more hens must be cultivated and raised to lay eggs. This whole process takes a relatively long while which creates some implications on other solutions to counteract this problem. Since this epidemic had become a prevalent topic that swept the entire nation of South Korea, I believe that the government will take action to help farmers replenish the supply levels of eggs. This can be done with the government placing price floors under equilibrium benefiting the producers. However, this would cause further outrage, as it would cause market inefficiency. Therefore, I believe the ideal solution would be increasing the amount of eggs that are imported from other countries. Although, if this is implemented, it is most likely that the prices of eggs would further increase due to the import expensesthat would be generated. Therefore, I believe that in the next several months before the local supply of eggs return to normal, the market price of eggs would keep on surging, forcing South Koreansto consider on cooking egg-free dishes.