Question

For most business firms that sells a particular good on the market, a decision has to be made from time-to-time to either raise the price of the good, lower the price of the good, or keep the price of the good unchanged. Today, considering what the U.S. is going through (pandemic), what do you anticipate prices to do now and over the next six months for the following items? 1. Gasoline 2.Tomatoes 3. Housing When would you recommend raising the price of the good? Explain why. When would you recommend lowering the price of the good? Explain why. When would you recommend keeping the price of the good unchanged? Explain why

Answer 1

1. Gasoline - The price of gasoline will drop now owing to the lockdown and social distancing, people will use less vehicles which means that the demand for gasoline will fall below its supply. However, in the next six months if the lockdown is relaxed, there will be more vehicles and the demand of gasoline might gradually increase.
I would recommend the price of gasoline to increase gradually over the next six months to curb the loss it is facing now.

2. Tomatoes - The price of tomatoes might rise because many people will turn to panic buying and increase the demand for tomatoes. Since social distancing is to be maintained, the production process of tomatoes will also slowdown. Thus, this will lead to a situation where the demand exceeds the supply and in order to curb this, firms would increase the price of tomatoes. In the next six months, the prices would gradually reduce once the production process gets back to normal.
  I would recommend the prices of tomatoes to be unchanged since it is an essential commodity. Many people will panic buy and some might not even buy at all. So, in the long run ( say more than six months in this case) the demand will equal the supply.

3. Housing - There will be a slight change in the price of the housing sector because people would refrain from buying houses during a pandemic. Since there is a less demand for houses and the economic cndition is also declining the prices will drop with a small percentage.
I would recommend price to remain unchanged only untill the econmy fully recovers because in times of a pandemic buying new house is out of question but also constructing new houses. There will be less workers and the construction process will be delayed.