Question

5.Consider the market for face masks. When COVID-19 lockdowns started in March, healthcare workers and the general public complained about a lack of face masks.2Now, however, several months later, there is no significant lack of face masks, and the government mandates the wearing of facial protection in public indoor settings.

Using a supply and demand diagram, explain how this initial shortage of face masks rectified itself. (Hint: the transition to a new equilibrium)(15%)

Answer 1

Let us asume an initial equilibrum ( before COVID 19 lockdown ) in the masks market, where the price of masks is P₁ and the quantity is Q₁. The following curve represents the same :

Now, when the COVID 19 lockdown was imposed, the demand for masks increased abruptly as people were scared that they would not be able to buy the masks later due to the lockdown. This is represented by a rightward shift in the demand curve. Because of the restrictions due to lockwdown, there were distruptions in the supply chain as well, which also led to a disrutption in the supply of masks. This disruption in supply can be represented by a leftward shift in the supply curve.

We can see from the above masks' market curve that in the new equilibrium, the new price is P₂ and new quantity is Q₂. We can also notice from the graph that P₂ is higher than P₁ and Q₂ is lower than Q₁. This explains as to why during the the prices of masks were higher and there was a shortage of masks during the lockdown period.

Now consider the situation where we are in at present. The supply chain disruptions have been sorted out as time progressed. The demand has also now stabilized as the lockdown restrictions have eased. The suppliers of the masks have realized that there is a shortage of masks in the market and have increased their supply accordingly. This increase in supply of masks is depicted by a rightward shift in the supply curve.

As we can see from the above curve, the supply curve has shifted rightward as the supplier of the masks have realized that there is a shortage of masks in the market and have accordingly increased their supply. We can notice that the new equilibrium in the masks market is at a price level of P₃ and quantity of Q₃. We can also notice that this new price level P₃ is lower then P₂ and the new equilibrium quantity Q₃ is higher than the Q₂.