![]() On the other hand, people who used to work outside now use more toilet paper at home (40% more by one estimate), as they use none at work (or in restaurants, hotels, or schools).Īnother thing to understand is that quantity demanded is higher than quantity supplied because government price controls don’t allow the price to fully adjust upwards. Their fears are not without justification, because the government is likely to worsen the problem. On the one hand, consumers fear that the shortage will persist or worsen (like in Cuba or Venezuela), so they want to stock toilet paper. On the current market for toilet paper, there are two reasons why consumer demand has increased. An interesting Medium story helps understand see Will Oremus, “ What Everyone’s Getting Wrong About the Toilet Paper Shortage” (April 2). The 10th worker around the machine will have a lower productivity than the first one. Technically, the reason is that, with fixed capital (plants, machines, and equipment) in the short-run, any variable factor of production used to increase production (say, labor) will have diminishing marginal productivity. This means that producers will be incited to increase production only if the price they get increases. As students learn in ECON 101, marginal cost is increasing in the short-run (and often in the long-run too). ![]() Since quantity demanded is now higher than quantity supplied at the ex ante price, producers would fill the gap only if they could increase production at the same marginal cost, that is, only if they could produce additional units at the same cost. ![]() ![]() Producers will only do so if it they make profits, which will not be the case at the capped price. Why don’t producers just produce more to fill unmet demand? They should be happy to do so. A common objection to the simple supply-and-demand model that predicts a shortage when the price is capped below its equilibrium level goes as follows. ![]()
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