Which do you prefer? White or brown eggs? I’m not going to lie, on the whole, I prefer brown eggs. Why? Hmm… I’m really not sure. Maybe because they are “special”?
Some people think that brown eggs have more nutrients than white eggs. Turns out that is not actually true. While white versus brown eggs come from different chickens, the only difference in their eggs is the shell.
It doesn’t actually matter whether the nutrients are different or if people are weird like me and on occasion want “special” eggs. If people perceive white eggs to be different than brown eggs then they will have different demand curves. What do I mean by having different demand curves? It means people will be willing to pay different prices for a brown versus a white egg.
So, is that why brown and white eggs cost different amounts, because the demand curves are different? Actually no.
First, let’s talk about prices of perfectly competitive goods in the long-run.
There were a lot of econ terms in that sentence. I’ll break it down. Perfect Competition: We’re talking about goods where there are lots of producers and lots of consumers and each consumer or producer has minimal impact on the market. I’d say eggs fit that. Further, we are talking about goods that are identical. A regular (not organic) egg from one farm is going to be very, very similar to a regular (not organic) egg from another farm. It also must be the case that sellers can freely enter the market. While I’m sure there are some regulations for selling eggs in the U.S., if a farmer wanted to switch between brown and white eggs, they could probably do it without much start-up cost… beyond buying new chickens, of course. Finally, information. People need to be informed about the price of a brown versus a white egg. And, yes, they are very clearly marked at the grocery store.
1) many buyers and sellers. Eggs: check!
2) identical products. Eggs: check!
3) (close to) free entry and exit. Eggs: check!
4) full information. Eggs: check!
What does it mean to be in the Long-Run? The market has had time to adjust to fluctuations in supply or demand which might affect prices. An equilibrium occurs when there is no pressure for prices to change. In other words, there are not excess eggs that farmers are trying to sell, which would drive prices down. And, there is not a shortage of eggs where people are trying to buy eggs but there are none available which would cause the price to increase. Additionally, for the long run, it means that firms are not trying to enter or exit the egg making market.
Ok, let’s get back to prices. What drives prices in the long run? Is it demand or supply?
Let’s start by assuming that the cost of producing brown and white eggs is the same, and we’ll see whether a difference in demand will drive price differences.
Cost of Producing Eggs is the same but Demand for Brown Eggs is Higher
If people are willing to pay more for brown eggs than white eggs (the demand for brown eggs is higher than white eggs); as a farmer, which one would you produce? Brown eggs! The price is higher, and the cost is the same. Great! I’m making more money producing brown eggs than white eggs.
Price of brown eggs > Price of white eggs ---> Produce Brown Eggs
What will happen next? More farmers will switch over from producing white eggs to brown eggs. They can make more profit doing that, so why not? When the supply of eggs increases it will cause too many eggs to be produced at that original price. That puts downward pressure on prices. (Imagine excess eggs sitting out at the market… they will lower the price to get rid of them.)
More farmers producing brown eggs --> price of brown eggs falls
Fewer farmers producing white eggs --> price of white eggs increases
The price of brown eggs will continue to decrease, and the price of white eggs will increase since fewer farmers are producing white eggs until there is no incentive for farmers to switch from producing white eggs to brown eggs. Similarly, there is no incentive for farmers producing white eggs to produce brown eggs. In economic terminology, that means that the economic profit is equal to zero. This does not mean that farms are not making more revenue that the costs of the chickens, it just means that they cannot do any better by switching. If economic profit was positive, they are doing better producing brown eggs than producing something else, and others would want to join them. If the economic profit was negative, farmers would do better in another market (such as producing white eggs).
Economic Profit = 0
No incentive to enter or exit the market
What that should mean (again, assuming that the cost of production is the same) is that the price of white eggs equals the price of brown eggs – regardless of the fact that the demand for brown eggs is greater than the demand for white eggs. If one price was higher but the cost was the same, the economic profit would not be zero.
If the cost of production of brown and white eggs was the same, the price should be the same
But! We know from visiting the grocery store that brown eggs have a higher price than white eggs. So, what must be true? The cost of making brown eggs must be higher than the cost of making white eggs.
Is this true? Yes! Chickens that produce brown eggs need more nutrients than the chickens that produce white eggs. So, the cost of having chickens to supply brown eggs is higher. The price will still end up where economic profit is equal to zero (there is no incentive to enter or exit the brown egg market or the white egg market) but with a higher long-run equilibrium price for brown eggs.
To recap: What drives prices in the long run? The cost of production (supply), not the demand!
Sources on the difference between white and brown eggs:
Crème brulee is similar to ice cream: it seems like it would be a very difficult dessert to make. However, when it comes down to it, it’s not. Also, it has the same ingredients as ice cream: cream, eggs, sugar, and vanilla.
I used Ina Garten’s recipe and slightly adapted it based on what I had available. On top of that, I made a mistake while cooking it, which turned out not to be a problem!
Try it! Trust me, you’ll be happy with the outcome.
1 large egg
4 large egg yolks (you can use the whites to make this cake)
100 grams (½ cup) sugar
3 cups heavy cream
1 tsp. vanilla bean paste (or 1 stick vanilla bean or 1 tsp. vanilla extract)
~ 1/8 cup of sugar (for topping)
Preheat oven to 300 degrees.
Mix together in a mixer the eggs and sugar (not too long).
In a saucepan, heat up cream. If using a vanilla bean, split it open and add it to the cream. Heat until very hot but NOT boiling.
Remove from heat. If you put a vanilla bean in the cream, remove it and scrap as much of the seeds into the cream.
With the mixer on, slowly add the hot cream to the eggs. You don’t want to scramble the eggs, so make sure the mixer is going and you don’t add all of the cream at one time. If you are using vanilla paste or extract, add it here.