COVID-19 is affecting global markets everywhere, including the market for chickens in India. In India, the price of chickens has fallen drastically. This is due to a decrease in demand caused by rumours that the coronavirus can be transmitted through the consumption of chickens. The demand determinant in this situation would be buyer’s preference as Indians prefer not to consume chicken currently. As a result, the wholesale price of chicken has dropped by nearly 70% and prices are so low that it is unlikely for vendors to profit off of chicken sales.
The decrease in demand is shown by a leftward shift of the demand curve on the graph below:
The COVID-19 outbreak has prompted an increase in the demand for hand sanitizer. Health experts have advised the public that good hand hygiene can help to prevent the spreading of germs. The World Health Organization (WHO) is also encouraging basic protective measures against the coronavirus, such as the regular cleaning of hands with alcohol-based hand rubs or soap and water. As a result, sales of hand sanitizer has surged around the globe. Data collected through Adobe Analytics shows a 1400% increase in demand for hand sanitizers in the U.S.
Stock for hand sanitizer has sold out on e-commerce retailers, including Amazon, Walgreens and Walmart. In response, third-party vendors are beginning to raise prices on Amazon and eBay. In the U.K, Defandol hand gel that has a standard retail price of £3.49 is now being sold on Amazon for £109.99.
Buyer’s preferences for hand sanitizer have increased, causing the demand curve to shift to the right. A growing concern for safety triggered the change in buyer’s preferences. The shift to the right has caused both an increase in the equilibrium price and quantity demanded.
Due to the recent coronavirus outbreak. There have been travel restrictions and quarantines imposed on citizens all around the world. One example of this is the travel restriction being imposed in Hubei, China, which is affecting as many as 50 million people by preventing them from traveling. Thus, lower the number of people who need to go to gas stations to refuel their cars.
As a result, due to the demand determinate of number of buyers decreasing, the demand curve has now shifted to the left, which has decreased the equilibrium price of gas.
Gas prices in Canada and other parts of the world have been falling precipitously as a result of the COVID-19 outbreak. The epidemic has led to several travel restrictions and quarantines worldwide, meaning there are far fewer cars on the street and less people using gas stations, especially in China, where the virus originated from. China is also the second largest oil consumer in the world, meaning demand for gasoline has dropped significantly, and there is a large surplus in supply. Hence, gas prices have gone down across the globe, decreasing by 13 cents a litre in the past week, and are projected to go below 90 cents a litre soon. The demand determinant in this situation is number of buyers, as the coronavirus outbreak has resulted in less travel and less people using their cars and buying gasoline, and given an unchanged supply curve, the new equilibrium point is at a lower price and quantity.
Prices for used cars in Turkey have gone up by almost 50% in the past few months. Due to an increase in the price of new cars (caused by a shortage of new car imports that use the currently low-supply Chinese car parts), more people are now buying used cars.
This is an example of the demand determinant of “cost of substitute goods”, where the cost of the substitute good of ‘new cars’ to the good ‘used cars’ has risen, causing the demand for ‘used cars’ to rise.
Due to the right shift of the demand curve, the price of used cars has now increased and the quantity of used cars demanded has also increased.
The issue at hand here is that India, one of the world’s biggest onion exporters, has banned the export of onions. Unfortunately, rain damage has impacted many harvests and crops. Last year they exported over $500 million worth of onions. The heaviest monsoon rain in 25 years has crippled the harvests. In order to combat the issue, the Indian government has banned all exports of onions. The country is already dealing with an issue with onions, as prices have doubled. This is attributed to how widely consumed onions are in Indian cuisine. As we can see in the graph, a change in underlying conditions (weather) has decreased the supply of onions, not only in India but on the global market, thus the shift left on the supply curve.
In France, the demand for hand gel has increased drastically due to fears of the spread of the coronavirus, which is considered a change in the buyers’ preference. The general populace is becoming more conscious of the importance of sanitation in limiting further spread; the overall demand for hand gels has increased (shifted to the right) because of people’s concern for their safety. In fact, Gilbert, one of France’s main producers of sanitizing gels, says it has sold 1.7 million bottles in the last six weeks compared with 800,000 for all of 2019. This increase in demand has resulted in a disequilibrium due to shortages. Since supply has remained constant and demand has increased, both the equilibrium quantity and equilibrium price have increased. Because France has placed a cap on the retail price of hand gels, equilibrium price may not be reached and shortages (more quantity demanded than quantity supplied) may persist.
A double shift has occurred in the market for flights to China, with a drastic decrease in both supply and demand of flights.
The quantity of flights from the US to China decreased drastically in recent weeks, while the price of flights to China have increased. The demand determinant in this situation is consumer preferences: because of COVID-19, and US Travel Advisories, travellers are avoiding non-essential travel to China. The demand for flights to China is down 48%. The supply determinant is the number of suppliers. This is because many major airlines have stopped flying to China altogether, resulting in a major decrease in the supply of flights. The new equilibrium results in a much lower number of flights running between the US and China. Despite the drastic reduction in demand of flights, because of the limited number of airlines who are still running flights to China, the cost of flying to China has actually increased by roughly 14%, as the decrease in supply is greater than the decrease in demand. The resulting shifts in both supply and demand for flights to China have resulted in a drastic decrease in the number of flights, and a increase in the price of flights to China.
Over the past few months, parts of East Africa have been experiencing some unfortunate weather. Prolonged heavy rainfall has led to landslides, floods, and ruined tomato crops. Eighty percent of farms in East Africa were affected. The weather is caused by something called the “Indian Ocean Dipole” effect, thought to have been provoked because of climate change.
These weather conditions are making it more expensive for farmers to supply tomatoes. This increase in the cost of factors of production for farmers is decreasing supply and driving prices up for consumers. In Nairobi, one tomato cost 5 US cents about a month ago. Now, it costs between 25 and 35 US cents apiece. That’s up to 7x more expensive.
As is visible in the graph, the change in underlying conditions shifts the supply curve to the left. In effect, the equilibrium price rises and the quantity decreases.
Recently, Starbucks raised prices on about 30% of their products. The price increased due to a reduction in supply. Starbucks claimed that some of the reasons for these price increases were because of increased operating and occupancy expenses which include rent, marketing costs, equipment costs and materials costs. All of these costs can be classified as “costs of factors of production”, a supply determinant. Since the costs of factors of production increased, the supply decreased and the supply curve shifted to the left. At this new equilibrium point, there should be a decrease in quantity supplied and an increase in price, which explains the 30% price increase. However, when referring to the graph, please note that according to food policy expert Sylvain Charlebois, the actual trend is quite inelastic. Thus, this simplified supply and demand graph may not be quite as accurate as expected since the quantity demanded remains relatively the same regardless of price increases.
Posts by and for the CIA4U course at William Lyon Mackenzie
Caution: Economics Students at Work 