Intro Economics of a Pandemic: Supply and Demand
Okay, but how many masks are producers willing to supply at the lower price?
3,100
How many masks are being purchased or exchanged?
3,500
How many masks do people want to buy at the price ceiling?
3,900
So when the demand curve shifted right and the market price was still $10 for the mask, what was the new quantity demanded of mask? In other words, how many masks did people want to buy for $10 after the outbreak?
4,500
How much is the shortage.
4000
But how many masks were suppliers initially producing at the $10 price?
500
So at a price of $10 people wanted 4,500 masks and suppliers were producing 500. What is this called again --- when quantity demanded exceeds quantity supplied?
Shortage
Most definitely! We make more than just N95 masks, so increasing our quantity supplied of masks caused us to change production decisions about the other goods we produce. Yes, I noticed that! We produce needle-safe gloves as well. When we increased our quantity supplied of masks, we needed to pull more resources -- like labor hours -- from the production of gloves to masks. In terms of gloves, we:
decreased our supply -- a leftward shift of the supply curve for gloves.
Yes, the U.S. government has announced a price regulation for N95 masks. They are going to establish a price ceiling for N95 masks. If the price ceiling is effective, will it be above or below the market equilibrium price of $200?
Below
So before the outbreak of the virus, the equilibrium market price of one N95 mask was $10. After the outbreak, the equilibrium market price shot up to $200 for the same mask! What happened in the market for N95?!?!
The demand for mask increased sharply
I got it, so when there is upward pressure on price, there is movement up the supply curve. But what about the demand side?
There is an upward movement along the new demand curve.
And if there's upward pressure on price, how does this affect the supply side of the market?
There will be an upward movement along the supply curve.