Question

A: Waves of panic-buying as a result of coronavirus has impacted the market for certain commodities, particularly toilet paper, with many consumers more worried about the toilet paper supply than the virus itself, and others seeking to profit by re-selling it at a higher price to desperate consumers. Using concepts of microeconomics, and with the help of a diagram(s), provide an analysis of the market for toilet paper, explaining the causes and consequences of the shortage, and how you expect this to adjust in the long run.

B: Recent events have caused unprecedented conditions for the global oil markets, with two large oil producers engaging in a price war, followed by the global pandemic affecting the market through a reduction in transportation and industrial production. Consider a small country with a single oil producer owned by the state, supplying oil to the global economy. This oil producer is a price-taking firm operating in a global, competitive market, and has no international agreement with any other global producer. Until recently the firm had a comparative advantage and was able to turn a profit, however this firm is now in a position where their operating costs exceed their revenue and are forced to shut down unless the government is willing to step in. Using concepts of microeconomics, and with the help of a diagram(s), provide an economic analysis explaining how the events in the global oil market affected this firm, and provide a commentary on what you think might happen in the long run. If prices return to pre-pandemic levels, would this producer be able to return to earning profit in the long run? Why?

Answer 1

A. This is a clear caes in which demand is exceeding the supply. Prices go up from p1 to p2. People becoming more conscious and are demanding more papers to keep hygiene higher.

Consequences are: Being a competitive market, looking at more profits supply will shift to right in the long run and prices will come down from p2 to p1.

B. This is a clear case in which supply has shifted right due to overproduction by a few of the largest oil suppliers and demand shifted left due to lockdowns in many countries. Prices went down drastically. Prices are down from p1 to p1. After COVID-19 shocks, demand will shift right and oil prices will go up again. However, long run equilibrium will be at lower prices due to overproduction.