Question

1. During the COVID-19 pandemic, there is the sense that essentials like toilet paper is desperately needed. Use demand and supply analysis to explain what should happen in the market.
2. Suppose stores don’t want the backlash of increasing the prices due to the higher demand. . What do we expect to happen?

[Discuss how changes in demand will affect prices. Then show how a shortage develops using the idea that prices are not changing with the equilibrium.   This is NOT a price ceiling (just a shortage)]

Graphs are required, a minimum of 2 graphs.

Choose a topic from the list below and use economic principles to answer the questions.. Do not embark on analysis focusing on social, political, or other disciplinary inquiries of the topic.

Papers need only be minimum of 2 pages (including your graphs). Try not to go over 4 pages please.

Answer 1

In fig.1, Due to the pandemic the supply chains get disrupted and the supple decreases, which results in shifting of supply curve to the left. As the need for toilet paper is already much more this will create excess demand in the market which is needed to be fulfilled for which manufacturers will make arrangements for the materials required as toilet paper becomes a necessity. But they wont be able to increase the supply by much as the shortage on inputs cannnot be dealt with in such a scenario so supply will not increase by much as comared to the demand which has increased due to fear among the people as they hoard the things. Therefore price of toilet paper will go up as well as the quantity supplied as it is an opportunity for the supplier to earn more profits because people are necessitated to buy such goods even though the price increase as they also have a fear of not getting the supplies in future.

In fig 2, This is not related to the figure1. As stores dont want to get the backlash for increasing prices, they make sell the toilet paper at old prices which is lower than the new equilibrium price(this is not price ceiling) which creates a condition of excess demand in market as buyers want more but suppliers dont want to supply more at this price because they are already bearing high cost of procuring inputs during such a pandemic as supply chains get disrupted. Now due to this excess demand, there will be competition among buyers which will push the price up and demand contracts due to law of demand as the competition increases but this will also expand the supply due to law of supply because now it is viable for suppliers to supply more until the market reaches back at the equilibrium. this will bring stability in the market . The price will continue to rise will entire excess demand is wiped out of the market.

(IF YOU WANT TO INCREASE THE MATERIAL YOU CAN ALSO WRITE THE DEFINITIONS OF LAW OF DEMAND SUPPLY)