Question

During the novel coronavirus (COVID-19) pandemic, people of all incomes from poor to rich are stocking up on different types of product they regard as necessary. Suppliers cannot increase their output quickly enough. Singapore government is concerned about profiteering and affordability in the markets concerned and is considering intervening. Using the demand-supply model, explain these phenomena in one or two markets of your choice. Advise which market interventions, if any, government should conduct in these markets.

Answer 1

Solution

Toilet paper - Reasons that caused shortage:

1.Supply Shock - The manufacturing locations have shut down.

2.Supply shock - The distribution channels have stopped functioning to even distribute the exisiting stocks

3.Demand Shock - Increased demand due to fear of shortage in future

Due to this equlibrium market price for the same will increase.So,the govt should impose Price Ceiling so that the consumers are not impacted by the rise in equibrium price.

Govt. should also impose quantity controls across locations based on the proportion of population so that the shortage can be balanced upto some extent

Govt.should provide it in the form of some subsidy to the poor as they have lost their income due to their job loss and lack of economic activity.

Rice,Wheat ,Vegetables and other essentials :

Same as above.