Activity 2(e) – New

Activity 2e: How the coronavirus affected supply

  1. The law of supply states that as the price of a good or service increases, the quantity supplied of that good or service will increase. This can be linked to the idea that as the price increases it is likely to become relatively more profitable compared to other uses of the same resources.
  2. The coronavirus resulted in widespread supply disruptions. For example, lockdowns in China made it more difficult to source a wide range of products, including computer chips. This meant that there was a shortage of new cars available in Australia. For businesses that need to purchase vehicles (for deliveries) this would represent an increase in their costs of production. Businesses in Australia were also subject to new regulations. Some businesses needed to upgrade their ventilation systems and ensure that safe distancing measures were observed. To adhere to these regulations, there may have been reduced productivity which results in higher costs per unit.
  3.  Both State and Federal Government introduced laws that led to supply disruptions. The Federal Government prevented a broad range of international flights from arriving in Australia. This disrupted a wide range of businesses and continues to have an impact on supply for many businesses in 2023. There are shortages of skilled labour because net immigration was negative over this period. The inability to fly between states also meant that supply decreased for this service. The lockdowns also resulted in significant supply disruptions. Many businesses were prevented by law, from trading. Businesses such as restaurants, theatres and hairdressers were all denied the ability to trade so in some cases supply decreased to zero.
  4.  As noted in the case study, businesses responded to the change in demand conditions. There were a range of products that experienced an increase in supply. The businesses responded to increased price signals and reallocated their resources to increase profits. The case study highlights an example where a gin company increased their production of hand sanitizer. Supermarkets also increased an increase in demand which encouraged them to supply more to the market. People, unable to go to restaurants, cooked more at home so the supply of fresh food and vegetables may have increased in response to favourable movements in price.