Using a supply and demand diagram, show the effects of COVID-19 on the market of toilet paper and explain why the curve(s) shifts.

Hint: Why was there a shortage of toilet paper? Which curve is affected by the event, demand, supply, or both? Make sure to indicate the change in equilibrium price and quantity.

Solutions

Expert Solution

Covid19 changes the demand for toilet papers because the disease created a hygienic consciousness among people and it spread a panic among consumers about the availability of papers in the market shortly.

So people started to consume more toilet papers as much as they can from various groceries as a result of the change in their preference. This caused change in demand as illustrated in the figure above.

That is, people consumes OQ1 amount of toilet papers instead of OQ at price OP as people's preference changes because of fear about the availability of toilet papers in the market in near future and increased hygienic consciousness. As a result of this change in demand the entire demand curve for toilet papers shifts upward from DD to D1D1.

In short run market equilibrium of toilet papers 'E 'may be affected as their exist a shortage of supply of toilet papers where the consumers may be willing to buy toilet papers at higher price OP1 instead of OP because of the fear about availability or shortages.

But in the long run producers may start to produce and supply more because their arised change in preference of the consumers . This causes the entire supply curve shifts upward from SS to S1S1 which brings back the equilibrium at E1 where OQ1quantity of toilet papers consumed at OP price.

Rahul Sunny answered 1 year ago

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