Question

Because of COVID-19 shutdowns, pig farmers are destroying their pigs and disposing of the carcasses – without bringing the pork to market. Pig prices have fallen considerably since March, with Canadian farmers losing between $30 to $50 per pig. Explain clearly why this is happening using a supply and demand diagram.

Answer 1

As a result of destruction of pigs, its market supply decreases. The supply curve shifts leftward, increasing price and decreasing quantity. But since price has decreased, it means that demand for pigs have decreased, too. The demand curve has shifted leftward, decreasing price and decreasing quantity. The net effect is a definite decrease in quantity. In this case, leftward shift in demand is higher than the leftward shift in supply, hence Price decreases.

In following graph, D0 & S0 are initial demand & supply curves intersecting at point A with price P0 and quantity Q0. After the changes, D0 shifts left to D1 and S0 shifts left to S1, intersecting at point B with lower price P1 and lower quantity Q1.