Price Adjustment During the Covid-19 Pandemic

Topic: Economics
Words: 819 Pages: 3

Demand refers to the quantity of goods and services that consumers are willing and able to buy at a given price over a specific period. The underlying relationship between the quantity demanded, and the price is referred to as the demand curve. Demand is more responsive to prices compared to other determinants in the long run. The demand for various goods and services has dramatically changed in the markets following the Covid 19 pandemic that has heavily hit the global markets. The pandemic’s effects have either led to a change or shift in the demand curve.

Change and Shift in Demand Curve

Change in the demand curve has been a result of the changes in the prices of various goods and services. It is also referred to as the movement along the curve. The quantity demanded is inversely related to the commodity prices. If the price of given commodity increases, then its demand would be expected to decrease. On the other hand, if the price decreases, the demand will increase. Following the pandemic, the prices of clinical, emergency sanitation, and hygienic supplies such as temperature guns, face masks, and hand sanitizers have decreased, leading to an increase in their demand (Balleer et al., 2020). Consequently, the prices of other commodities such as oxygen machines and fast goods increased, leading to a corresponding decrease in their demand for the commodities. However, the pandemic mainly led to a shift in the demand curve, negatively in the first and positively in the third quarter of 2020.

The shift in the demand curve has been caused by other factors that affect the demand of a commodity other than prices. They include the change in the prices of the close substitutes, taste, preference, fashion, seasonality, future expectations on prices, population, and income changes. Figure 1 shows a demand curve shift to the right from D0 to D1. The curve indicates an increase in the demand for clinical, emergency sanitation, and hygienic supplies from Q0 to Q1. It resulted from the increase of the price of the close substitutes and a significant decrease in the price of the complementary goods. It also resulted from the consumers’ income rises, an increase in the population that needed the goods daily, and the future expectation for an increase in the prices of the commodities. The factors directly affected the prices of various goods and services hence indirectly affecting the quantity demanded by the consumers. There are no or slight price changes in the global markets for the products. Therefore, P0 remains the original price of the commodities demanded despite the shift in the curve.

Price & Quantity
Figure 1

Figure 2 shows a demand curve shift to the left from DO to D1. The curve indicates a decrease in the demand for clinical, emergency sanitation, and hygienic supplies from Q0 to Q1. It resulted from the decrease of the price of the close substitutes and a significant increase in the price of the complementary goods. It also resulted from the fall in consumers’ income due to the decrease in working hours, a decrease in the population that needed the goods daily, and the future expectation for a decrease in the prices of the commodities. Also, P0 remains the original price of the commodities demanded despite the shift in the curve.

Price & Quantity
Figure 2

The shift in Supply Curve

Supply is the quantity of goods and services that producers, investors, or firms are willing and able to dispose of or provide for consumers in the market at a given price within a specific period. The changes in prices of the commodities lead to the movement along the supply curve. However, the shift in the supply curve results from the factors that affect supply other than price. They include the cost of production, taxation, technology, and the conditions for production. Figure 3 shows supply curves for clinical, emergency sanitation, and hygienic supplies during the Covid 19 pandemic. The left shift of the demand curve from S0 to S1 shows a decline in the supply of clinical, emergency sanitation, and hygienic supplies. It mainly resulted from the rise in the production cost and input prices, costly regulations, and high taxation on the products.

Additionally, the shift resulted from the decline in technology and the unfavorable working conditions as many companies were shut down and workers were not allowed to attend workplaces. Interestingly, the right shift of the demand curve from S0 to S2 shows an increase in the supply of clinical, emergency sanitation, and hygienic supplies in the second quarter of 2020. It mainly resulted from the decline in the production cost and input prices, reduced costly regulations, and low taxation on the products. It also resulted from technological advancement and favorable working and production conditions, such as the work-from-home perspective. Also, the increase in government subsidies and Covid 19 support led to the shift.

Price & Quantity
Figure 3

Reference

Balleer, A., Link, S., Menkhoff, M., & Zorn, P. (2020). Demand or supply? Price adjustment during the Covid-19 pandemic. Web.

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