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Supply, Demand, and the Coronavirus Pandemic

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Welcome to the first in our multipart series: The Coronavirus and the Global Economy. Each part will look at a core economic concept and its role in regulating the global economy, as well as the impact of the current coronavirus pandemic on its function. Today, we’re going to look at supply, demand, and global health care systems.

As the novel coronavirus first swept across the world in early 2020, very few people understood the impact this little-known disease would have. In just a few weeks, hospitals in major outbreak cities were buckling under the sudden influx of patients in dire need of medical assistance. Intensive care units reached capacity in record time, personal protective equipment or PPE was used, reused, and reused again until it literally fell apart in some cases, and health care workers everywhere worked around the clock in a desperate race against time to save patients and fight back the coronavirus. The demand for medical care was great, but the supply of resources and workers to provide it was not nearly big enough.

What is supply and demand?

Supply and demand is one of the most basic and most important economic concepts in the world. In its most basic form, supply and demand refers to the relationship between the availability of a given resource and the demand in the market for that given resource. It’s the formula people use to calculate the price for something.

For example:

  • if five people walk into a store after a long hike and are all desperate for some water and the store owner only has four bottles of water, the store owner can… 
    • charge a much higher price for their water because they know people will compete to buy it
  • if that same group of people stopped by after just coming from a restaurant, they probably won’t be as thirsty, so the store owner will have to…
    • charge a much lower price if they want to sell any.

The perfect quantity for any given item is known as an equilibrium point, and it signifies when there’s exactly the same amount of an item available as people who want to buy it. In a perfect economy, every item would always be at equilibrium point, because equilibrium is when the economy is functioning at its healthiest and the most money is exchanging hands. You can learn more about the economic theory behind supply and demand here. When items aren’t at equilibrium point in either direction, things can get dangerous very quickly. The coronavirus is just one example of the impact of an unbalanced supply and demand cycle.

What happens when the supply and demand cycle is unbalanced?

When the coronavirus first struck, there were certain medical items that were in immediate demand. Respirators, intensive care beds, masks, gowns, gloves- all of the medical equipment that was essential to safely treating and saving severe coronavirus patients was suddenly needed, everywhere. Within the first month of the disease hitting the United States, they needed close to one million ventilators available to help struggling patients breathe. The most generous estimates thought there were somewhere around 160,000 actually available. In response to this drastic shortage, companies around the world halted production and quickly converted their manufacturing facilities to begin producing ventilators and other essential medical products.

These companies saw that there was an immediate demand for these types of products and also saw they could make a large profit by producing and selling these units as quickly as possible. Ventilators began selling for three to four times their average sale price, and the price of other essential medical equipment hiked drastically, to the point where hospitals were struggling to pay for it. The supply shortage had decimated the medical sector and stretched every resource thin.

While the demand for medicare care raged and people struggled to match supply, demand for other services dropped in response to the pandemic. Entertainment and hospitality industries were decimated. No one needed their services, so their demand plummeted even as their supply remained consistent. Companies were forced to sell their services or products at extremely discounted rates, or even shut down. On the other end of the spectrum, the demand shortage had decimated an entire sector of the economy.

What does supply and demand look like today?

As the coronavirus pandemic continues, we are beginning to see countries get a better handle on the supply and demand balance within their medical sector. More equipment is available, and prices are beginning to stabilize. Hospitals can afford the equipment they need to save patients again. As more people recover and the pandemic’s effects lessen in certain parts of the world, a demand for entertainment and hospitality is beginning to rise, slowly but surely, as people rush to claim a break from the grueling year of 2020. As it always does, the supply and demand curve is beginning to return to equilibrium. Only time will tell if we can remain there permanently.

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