Suppose individual X opened a supermarket just before lockdown commenced and does not offer online shopping....

Suppose individual X opened a supermarket just before lockdown commenced and does not offer online shopping. With the aid of a graph, illustrate and explain the effect on the change in demand for groceries on equilibrium price and quantity of groceries post-lockdown, ceteris

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Expert Solution

Due to lockdown in the situation of covid19, the demand of the essential items like groceries increases. The people starts demanding more of the products, but the supply of such products falls due to less production of such products. Before covid19, the prices were balanced as there was no overflow demand of customers. But during and after lockdown, the demand suddenly increases which effect the demand and supply graph of store. This was not due to increase in prices by manufacturers or producers, but because of less supply. To maintain the balance, the prices rises near about 64% of groceries.
Ceteris paribus refers to the effect of price on demand and supply in the economy. This typically does not apply in real world. Because there are many more factors which effect the demand and supply of products.i990
Also, during lockdown the transportation and ordering techniques has also changed. To avoid the risk of covid, people usually choose to sit at home and order food or groceries items online only. The supermarkets with no such facilities suffer a lot. Like in this case, mr. X faces losses due to no online ordering facilities. This reduces the demand of products from his store. And due to this he have to reduce the price or use discount offer technique to attract customers.
Therefore, post-lockdown, the prices rises till the supply increases and become equal to demand. The quantity of groceries fall, the price of such products rises. This effect could be illustrated by given below graph:

Rahul Sunny answered 1 year ago

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