Question

Current, or at least in the very recent past, we have had shortages of items like toilet paper and disinfecting wipes and hand sanitizer. (a) Does a shortage imply that the price of the item is above or below the equilibrium price? Please give an explanation.  (b) What happened to demand or supply that led to the shortage? Please explain.

Answer 1

(a) Shortage can occur in 2 scenarios:-

• When price of the item is below the equilibrium level which makes the buyers demand more at the same price and supplier supply less at the same price which leads to the shortage in market i.e., when Quantity demanded exceeds quantity supplied.(refer to the picture)
• When the supply chain disrupts or in case of future speculation or in conditions of contingency and emergencies especially for necessities like in case of tilet papers, shortages tend to occur.

(b)THe shortage occured due to the fact that due to the speculation for future condtions, people demanded more of toilet papers as they stocked it for emergency situations while due to the pandemic the supply chains got disrupted as raw materials required couldnt be sourced at the pace required and thus, the demand outpaced the supply which led to a shortage i.e, demand increased while supply decreaed due to disruption of production process which led to a shortage.