Elasticity of Demand and Supply in Regards to Covid-19

Elasticity of demand and supply can be difficult to understand. Perhaps it is the math. The formula for elasticity combines percentage changes as well as division. Furthermore, changes in both demand and price can differ by area. The approach to supply elasticity is similar to demand with the added piece of time. Both play a role in the shortages seen during the pandemic.

Elasticity of Demand

Remember when the news showed empty aisles of toilet paper? Or maybe you saw that first hand. Elasticity played a small part in this phenomena-the rest was irrational thought or fear. Toilet paper is an example of a good that is inelastic. There are few substitutes for toilet paper. Neither paper towels nor Kleenex are very good to use instead. American bathrooms are lacking bidets.

In normal markets, price acts as a stabilizer. But inelastic goods are impervious to price. Inelastic goods have few if any substitutes. Treatment of Covid-19 is complicated by government regulations. Prescription drugs are heavily regulated. A drug authorized to treat one disease or condition is not supposed to be used for the treatment of another without authorization. Since Covid-19 is new, no drugs were authorized early on. As time passes EUA (Emergency Use Authorization) of new or existing drugs occurs.

Treatment Options Impact Elasticity

Debate continues in the medical community about authorization of existing prescribed drugs to treat Covid-19. Remdesivir has EAU to treat Covid-19. This is one of the drugs given to President Trump. The drug is relatively new. Scientists developed Remdesivir to battle Ebola. The cost of the drug runs in the thousands of dollars.

Alternatives to Remdesivir include Ivermectin, a very cheap drug in comparison. Single doses of Ivermectin are less than ten dollars. This option has not received an EAU.  In recent weeks, medical authorities have testified in front of Congress on behalf of Ivermectin. If approved, a cheap substitute would impact the elasticity of Remdesivir.

In the U.S.A. non-prescription drugs are consumed to combat the symptoms of colds and flus. Many of these are also in demand for battling Covid-19. Products such as Theraflu, Tylenol Cold and Flu, Vicks, Mucinex-the list goes on and on-are easy to find. Since there are so many similar products the elasticity is great. A price change in one cues buyers to try another brand. Even at the height of the pandemic panic last spring OTC (Over the Counter) remedies were available.

Elasticity of Supply

Elasticity of demand and supply are calculated the same way. However, supply includes a time element. The three stages of supply are current, near future, and long term. Chances are you have experienced a need or want that was unable to be fulfilled that day. A restaurant runs out of the day’s special. Or your car broke down and the repair shop doesn’t have the needed replacement part. In both cases, current supply is inelastic.

Price is not a factor in these cases of on-hand supply. However, the elasticity changes in both the near future and the long term. The Covid-19 vaccine is a good example to show the elasticity of supply. Six months ago, there was no vaccine. Thus the supply was totally inelastic (and zero). Then testing began and a limited amount was supplied to test subjects. Now, the EAU for the first vaccine to hit the market means the supply is slightly more elastic. A year from now it is possible that anyone who wants a vaccine will be able to get one. Furthermore, as more vaccines hit the market, individuals may be able to pick which manufacturer to choose from. This means more elasticity.

So in a period of eighteen months or so, the supply of a Covid-19 vaccine will have gone from a totally inelastic product to one with elasticity. Although probably not as elastic as products with lots of substitutes.

Inputs Impact Elasticity of Demand and Supply

Natural aspects of the pandemic impact elasticity of demand and supply for non-Covid-19 related goods. Illness not only slows production, but also drives demand for particular items such as anti-bacterial wipes. Yet, due to the element of time, production capabilities can’t meet the new demand. Furthermore, with inelastic demand and supply, price is not able to work as an equilibrium and so we have shortages.

People are avoiding crowds and travel. Price changes are not influential enough to change either the demand or supply. Suppliers such as cruise lines and theme parks have few buyers for their product. The lack of revenue threatens their very existence. If the pandemic lasts long enough many companies will go under.

Elasticity of demand and supply is at work. But remember, this is subject to change with the passage of time. The biggest problem for companies both large and small is the time element. Households have a difficult time with Rainy Day Funds and businesses are not any different. We are closing in on a year of Covid-19. How many of you can withstand a year of greatly reduced income? Or no income at all?

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