News events with Microeconomics

Answer

1. • Economics for Financial Analysis

     Individual Assignment

      

      

     Please show the word count of the following:

      

     	Word Count
     Number of words used for describing the news related with microeconomics:	100
     Number of words used for analyzing the news related with macroeconomics:	832

      

      

      

      

      

      

      

     News Related with Microeconomics

      

      

     Title of the news:	Flushing out the true cause of the global toilet paper shortage amid coronavirus pandemic
     Event date of the news:	7th April 2020
     Location of the news event:	United States of America
     Source of the news (e.g., name of the newspaper, news media, website, etc):	The Washington Post

      

      

     Brief description of the news (use not more than 100 words, in font “Times New Roman size 12” and double line spacing):

      

     Apart from the health crisis, the coronavirus came with another strange crisis. For the first time, the country was grappling with a shortage of toilet papers. Fischer (2020) asserts that Americans could not find stores that still stoked toilet papers all over the country. The aisles reserved for the commodity that became precious overnight were empty. The shortage stemmed from an increase in demand that surpassed the level of production. Manufacturers of the commodity could not anticipate the sharp increase in the demand for toiler papers across the country and, therefore, could not adequately meet the product's demand.

      

     Analysis of the news (use 800 – 1,000 words, in font “Times New Roman size 12” and double line spacing):

      

      

     The shortage of tissue paper witnessed in the United States can be explained through the concept of demand and supply.  Huang et al. (2019) define demand as the quantity consumers in the market are willing and able to buy in the market. On the other hand, supply is the total quantity of goods and services available to meet the needs of consumers in the market. In a market, if the level of demand surpasses the level of supply, there is a shortage of the commodity. On the other hand, if the level of supply surpasses the level of demand, the market experiences a surplus. The American market for toilet paper was experiencing a shortage. The demand for toilet paper increased significantly, surpassing the level of normal demand for the product in the market.  The sharp increase in the level of demand stemmed from the fear of a looming shortage of the commodity in the near future. The consumers, therefore, felt compelled to purchase and stock the commodity for their personal future use. Therefore, the significant increase in quantity demanded led to the shortage of toilet paper Americans experienced in April.

      The fear of the looming shortage in the products stemmed from the containment measures adopted to fight COVID-19.  One of the measures implemented by various states in America to fight the spread of the virus and flatten the curve was through lockdown. The measure implied that most Americans were to stay indoors, and only essential personnel were required to walk and report to their jobs.  The lockdown meant employees could no longer report to work, a factor that affected production. Labor is a vital factor of production.  The lockdown instituted meant employees could not report for work, a factor that reduced the level of production.  Toilet paper manufacturers knew about the shortage of their products in the market but could not increase their rate of production because of the absence of the labor force. Therefore, lockdown as a containment measure slowed the rate of production and made it impossible for the manufacturers to respond to the increase in the rate of production because they did not have the labor required to increase the rate of production.

     Consumers also played an integral role in spreading the shortage across the states of the country through the decision they made to purchase the product in bulk.  Customer that used to purchase a few rolls started purchasing the product in bulk. The decision was arrived at after performing a cost-benefit analysis. Cowell (2018) asserts that cost-benefit analysis is a method of decision making where a person weighs the advantages of an impending decision against its advantages before making the decision.  Based on the circumstances at the time, many consumers felt it was beneficial to purchase toilet papers in bulk because of the following reasons; first, they wanted to have enough to meet their personal needs even in the case of a lockdown. Secondly, they were optimistic with the shortage that was spreading across the country, the product would have a high resale value after a couple of days, and therefore, there was no way they were going to end up with a large stockpile of toilet paper they could not dispose of even at a profit. Therefore, cost-benefit analysis played a vital role, especially for those consumers who had a business mentality and wanted to make money through the crisis.

     Hoarding also played a vital role in the decision to purchase more toilet paper than what consumers required. The concept of choice in economics makes the assumption that human beings are rational and make informed choices. However, the decision to hoard toilet papers was not rational but was one that responded to the panicky nature of human beings during impending disasters. For instance, similar behavior is often witnessed during an impending hurricane where consumers raid stores for batteries and bottled water. Consumers buy as much as they think will last them even in the case the impending disaster goes on for a prolonged period of time. The concept of opportunity cost also comes into the picture. Opportunity cost is the value of the forgone alternative (Cowell,2018). The opportunity cost for not having enough toilet paper in the house during the lockdown period was too high, and therefore, even rational consumers decided to make irrational decisions and hoard the toilet papers.

     Lastly, the price also played an essential role in the shortage of toilet paper. In demand and supply, the markets often respond to an increase in demand through an increase in price. Consumers, therefore, anticipated that the price of the commodity was going to increase due to the rising level of demand in the market.  Most consumers, therefore, decided to purchase the toilet papers before the prices increased in order to save money, which is a scarce resource. While making the purchases, they also leveraged the concept of economies of scale through purchasing in bulk to enjoy the cost savings that come with making bulk purchases.