Shortages
Pandemic Minute: what do lumber, salty potato chips, and, of course, toilet paper show us about how to "get the goods"?
One constant of the pandemic has been shortages- where the demand for a product outstrips supply, or at least jumps up faster than supply can respond. Shortages may be one of the most noticeable economic phenomena of the pandemic because they’re inconvenient and lately so darn expensive! However, limited in-demand product isn’t always allocated merely through higher prices-- allocation can also happen with connections, quality adjustments, and the big one- time.
The most straightforward economic response to a sudden demand increase is rising prices. (Recall a basic supply and demand graph—if demand increases without a change in supply, price must also rise!). For example, 2021 lumber prices were up over 280% from the 2014-2019 average. Demand has skyrocketed for building outdoor retail spaces, new housing construction, (and awesome backyard treehouses?). Housing markets are similar-- everyone involved in real estate in the past year has either an exaltation or exasperation story about skyrocketing prices.
If society explicitly doesn’t think price is a “fair” way to allocate-- such as during early vaccine production—the good might instead be allocated by some social norm, such as the legal prioritizing of the elderly for the first vaccines. This is a kind of connection- a way that certain people move to the front of the line. For example, think that cheap, but actually decent, rent-control apartment handed down through friends.
The apartment problem also illustrates (decreasing) quality adjustment in response to excess demand. Using cheaper production methods instead of higher prices. This is a more stealth allocation—but has anyone besides me noticed a bag or two of weirdly oversalted potato chips or non-standard pump tops on their shampoo during the pandemic??
Finally, price hikes are often unpopular in consumer goods. We saw this particularly during early 2020, where empty shelves of paper towels abounded but prices on these shelves were stable. If you can’t raise price, what’s a clever economic agent to do?
The “price” can instead be raised with time, not dollars, such as long waiting lines for furniture or appliances- Whirlpool said this month that backorders were at least 6 weeks for an average appliance.
Wait, but what about everyone’s favorite shortage—toilet paper!? Commonly, toilet paper just became subject to per person quotas. Thus, escaping economic allocation, right? If you were checking the paper product aisle early and often, you were also paying in time and if you were asking neighbors and friends about availability, it was allocated by network connections- way to be connected to your community!