ECO 365 Week 5 Applying Microeconomics to Current Events Example

Price Caps, Imports, Hen Vaccines and Cage-Free Mandates: Using Surplus, Shortage and Deadweight Loss to Judge the Policy Ideas of the 2025 Egg Crisis

[Student Name]

University of Phoenix

ECO/365: Principles of Microeconomics

Week 5 Assignment

[Instructor Name]

[Date]

The market model uses simplified illustrative numbers written for a model paper; policy events and research findings come from the sources listed and are stated generally.

By March 2025, the average retail price of a dozen eggs had passed $6, and proposals to bring it down came from many directions: cap prices, import eggs, vaccinate hens and suspend or keep state rules requiring cage-free eggs. Each was argued with conviction and little analysis. Microeconomics cannot settle questions of value, but it can say what each policy would do to prices, quantities and the total gains from trade. This paper applies the course's tools to each proposal.

A Simple Model of the Market

For illustration, suppose that after the outbreak the monthly demand for eggs is given by a quantity of 900 million dozen minus 40 million for each dollar of price, and the reduced supply by 300 million dozen plus 60 million for each dollar. The market clears where the two are equal, at a price of $6 and a quantity of 660 million dozen. At that point, demand is inelastic, with an elasticity of about 0.36, consistent with the evidence in Week 2 that buyers respond little to egg prices.

Proposal One: A Price Cap

Some officials proposed capping retail egg prices at $4 a dozen. At $4, buyers would want 740 million dozen, but sellers would offer only 540 million, a shortage of 200 million dozen a month. Eggs would be rationed by empty shelves, purchase limits and luck. The 120 million dozen no longer traded represent lost gains: buyers valued those eggs at up to $9 a dozen, while sellers could have supplied them at $4 to $6. The deadweight loss is the triangle between the curves over those lost units, about half of 120 million times $5, or roughly $300 million a month (Mankiw, 2021). Consumers who found eggs would pay less, but many would find none.

Who Wins and Loses From the Cap

Buyers who obtained eggs at $4 would gain, sellers would lose and the lost trades would harm both sides. Producers would have less reason to rebuild flocks quickly, prolonging the shortage, the opposite of what consumers needed. Higher prices, painful as they were, signaled producers to restock.

Proposal Two: Temporary Imports

In early 2025, the Department of Agriculture announced plans to increase imports of eggs from other countries while domestic flocks recovered. Imports add to the quantity available at each price, shifting supply to the right. If imports added 60 million dozen a month, the model's new equilibrium would be at a price of about $5.40 and a quantity of about 684 million dozen. Consumers gain from lower prices and greater quantity; domestic producers receive somewhat lower prices but still sell all they can produce while flocks rebuild. Imports avoid the shortage and deadweight loss that a cap creates, though they are limited by foreign supplies and food safety rules.

Proposal Three: Vaccinating Hens

In February 2025, the Department of Agriculture granted a conditional license for an avian influenza vaccine for poultry. Vaccination could reduce the frequency of future supply shocks, making supply more stable and prices less volatile. But some trading partners restrict imports of poultry from countries that vaccinate, because vaccinated birds can complicate disease surveillance, which could harm the much larger broiler chicken export business. The decision weighs more stable egg supply against export risk, a tradeoff across markets that a single-market model cannot capture fully.

Proposal Four: Cage-Free Mandates

California's Proposition 12, approved by voters in 2018 and upheld by the Supreme Court in 2023, requires that eggs sold in the state come from cage-free hens, and several other states have similar laws. Mullally and Lusk (2018) estimated that California's earlier housing rules pushed egg prices up within the state, in line with the higher production costs discussed in Week 3, which shift supply upward. During the 2025 spike, some proposed suspending such rules to increase supply. Suspension would lower prices in those states somewhat, but many producers had already converted, so the short-run effect would be modest.

Valuing Animal Welfare

Norwood and Lusk (2011) argued that many consumers place real value on farm animal welfare and that such values can be measured and weighed against costs. A cage-free mandate imposes higher costs on all buyers in a state to serve a value held by many voters. Microeconomics can measure the cost; whether it is worth paying is a judgment that voters made.

A Tax Holiday Proposal

Some legislators suggested suspending sales taxes on eggs. Most states already exempt groceries from sales tax, so the effect would be small in many places. Where a tax applies, removing it would lower the price consumers pay by less than the full tax, because with inelastic demand and a supply fixed in the short run, part of the cut would flow to sellers as a higher pretax price. The proposal shows how elasticity determines who benefits from a tax change, a point from Week 2.

Ranking the Responses

Imports offered quick relief with few costs and should have been the first response. Vaccination offers longer-term stability but requires managing trade risks, so a targeted program for egg-laying flocks with trade agreements in place makes sense. Keeping cage-free mandates is a value judgment, with modest short-run price effects. A price cap would have caused shortages, deadweight loss and slower recovery, and should be rejected.

What the Course Tools Added

Supply and demand identified the shock, elasticity explained why prices rose so far, costs explained producers' responses and the effect of mandates, market structure framed questions about pricing power and surplus analysis measured the costs of a price cap. Together they turned a heated debate into a ranked set of choices.

Conclusion

The 2025 egg crisis showed that the most popular-sounding response, a price cap, would have caused the most harm, creating a shortage and a deadweight loss of roughly $300 million a month in a simple model while slowing recovery. Imports and vaccination addressed supply directly, and cage-free mandates traded higher prices for a value voters chose. Microeconomics does not decide every question, but it shows clearly who gains and loses from each.

References

Mankiw, N. G. (2021). Principles of microeconomics (9th ed.). Cengage.

Mullally, C., & Lusk, J. L. (2018). The impact of farm animal housing restrictions on egg prices, consumer welfare, and production in California. American Journal of Agricultural Economics, 100(3), 649-669. https://doi.org/10.1093/ajae/aax049

Norwood, F. B., & Lusk, J. L. (2011). Compassion, by the pound: The economics of farm animal welfare. Oxford University Press.