Question

Question: Using the demand and supply model, explain and illustrate the effect of coronavirus outbreak on the market for lobsters in Australia. Hint: Make sure you discuss the equilibrating process, and clearly outline the assumptions in discussing the factors causing change in price and quantity. Also, use the determinants of price elasticity of demand to analyse whether the demand for lobsters is likely to be price elastic or inelastic.

Article:

Australians can buy lobster for as little as $33 as prices fall due to demand dropping from China in the wake of the coronavirus epidemic.

China is one of the biggest buyers of Western Australia's rock lobster but due to the closure of the Chinese live animal trade, fishing industries are fearing the worst.

There are now tonnes of the crustacean sitting in holding tanks, forcing industries to sell them at reduced prices.

The Geraldton Fishermen's Cooperative (GFC) were expecting the Chinese New Year period to be their busiest time with around 50 to 60 tonnes of lobster being handled each day.

But CEO Matt Rutter said they have taken a massive blow in the wake of the market closure and fear it will be some time before it reopens.

Lobsters that once sold for $48 are now selling for $15 less.

We are estimating that we have a month's worth of western rock lobster that we will continue to sell out of WA,' Mr Rutter told the ABC.

He said there was a few hundred tonnes that had been shipped before the market shut down - with the western rock lobster making up a large proportion.

Mr Rutter said that despite the low prices for consumers, staff and fishermen within the industry were at a loss.

'Because we don't have product flowing through the door, we don't have trucks driving or people at the depots receiving … a lot of the staff that would normally be carrying that out have unfortunately been told to stand down until the product starts flowing again,' he said.

'It's not just the fishers who are hurting, but everyone who relies on the industry for income.'

GFC can hold 220 tonnes of lobster in refrigerated seawater storage tanks that keep them from four to six weeks.

Mr Rutter said the industry will continue to use other international markets like Japan and the USA.

There have been 12 confirmed cases of coronavirus in Australia, and more than 17,000 cases and 360 deaths globally.

Answer 1

Due to the Covid pandemic, domestic prices of rock lobster have come down substantially to clear the excess domestic supply.

In the short run, increased local supply (assumed net increase inspite of the supply logistics bottlenecks due to the pandemic) the supply curve has moved rightwards, reducing the short term domestic equilibrium prices as the demand curve broadly remains intact (assumed there is negligible impact to effective demand due to the pandemic).

In the longer term, the prices are expected to create a new equilibrium as supply and demand gets more time to adjust and export s again catch up.