Supply and demand

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Market prices are constantly adjusting to bring inkhổng lồ balance the amount desired by buyers và the amount sold by sellers. This balance is found at the equilibrium price, where supply và demand intersect (Figure 5). At this point we have our equilibrium price (Pe) & equilibrium quantity (Qe).

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Scientific Events

Biology: COVID-19

The COVID-19 pandemic and the associated lockdowns hit the Leisure & Hospitality sector particularly hard (Figure 6). A recent study looked at hours worked by sector in the immediate aftermath of stay-at-home page orders—March 2020.2 As shown in Figure 6, the effects on hours worked are separated inkhổng lồ supply factors (red bars) và demand factors (blue bars) và measured as the percent change in historical growth rates of hours worked in each sector. Supply factors are related lớn businesses partially or fully shutting down. Demvà factors are related to lớn reduced consumer spending, such as from customers not shopping, to lớn avoid catching the virut, or simply cutting baông xã on spending due to income loss.3 For most sectors, hours worked dropped compared with historical trends due khổng lồ both supply và dem& factors.

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Although supply factors contributed khổng lồ most of the almost 10 percent drop in the Leisure và Hospitality sector in March 20trăng tròn compared with historical growth, dem& factors also contributed (see Figure 6). The change in this sector is demonstrated in Figure 7: Demand decreases (shifts to lớn the left) và supply decreases more (also shifts to the left), resulting in a lower quantity of goods sold at the new equilibrium (Q2).4

Meteorology: Hurricane Sandy

In the fall of 2012, Hurricane Sandy hit New York City và surrounding regions, with millions of citizens & thousands of businesses losing power. In New Jersey, only 40 percent of gas stations tracked by AAA had power và were operational in the immediate aftermath of the hurricane.5 As a result, consumers faced a severe shock lớn the supply of gasoline.

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Using supply & dem& lớn analyze fuel ethanol markets is a little tricky due to lớn the volume ethanol limit. In Figure 9, the desire of producers to increase the supply of ethanol is indicated by the rightward shift of the supply curve. Producers would expect ethanol buyers khổng lồ continue increasing their demvà as ethanol becomes more and more popular. However, all else being equal, once buyers are running their vehicles with gasoline with 10 percent ethanol, their desire khổng lồ purchase more would dramatically decrease & the demvà curve would become a nearly straight vertical line.13 That is, the quantity demanded wouldn"t increase much beyond this limit even if the price of ethanol were lớn decrease because people won"t use gasoline with more than 10 percent ethanol. Thus, no matter how much producers wish khổng lồ increase supply, buyers would not buy much more ethanol and increased production of ethanol would drive sầu down prices.

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Figure 10U.S. Fuel Ethanol Consumption & Percent of Motor Gasoline Consumption, 1981-2019 (June 24, 2020)

Figure 10 confirms this analysis of supply and demvà. Fuel ethanol consumption increased dramatically during the 2000s and then flattened out when it reached about 10 percent of motor gasoline consumption.14

Conclusion

Markets provide a means by which individuals and businesses can trade goods and services. Though goods và services come in many shapes and sizes, they are all governed by the laws of supply and demvà. Of course, unanticipated scientific events, such as pandemics and hurricanes, can alter the course of markets. Yet, the same laws that make markets function every day will exert their will—the laws of supply & demand.

Notes

https://www.sciencemag.org/news/2020/03/modelers-weigh-value-lives-and-lockdown-costs-put-price-covid-19.

3 Some sectors such as Wholesale Trade and Information were positively impacted by demvà factors. In the case of the Information sector, the increase may have sầu been caused by families increasing their demvà for goods and services to work, communicate, and/or enjoy entertainment from home page.

4 Figure 7 depicts price increasing, but price could decrease depending on the size of the supply & demvà shifts & how responsive supply & dem& are lớn price changes.

6 There could actually have sầu been an increase in demand from individuals using gas powered electric generators during the power outage.

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8 U.S. Energy Information Administration. "Biofuels Explained: Ethanol & the Environment." December 7, 2020, update; https://www.eia.gov/energyexplained/biofuels/ethanol-and-the-environment.php.

9 Byrge, Joshua A. & Kliesen, Kevin L. "Ethanol: Economic Gain or Drain?" Federal Reserve sầu Bank of St. Louis Regional Economist, July 1, 2008; https://www.dnth.vn.org/publications/regional-economist/july-2008/ethanol-economic-gain-or-drain.

10 Johnson, M. Alex. "Mechanics See Ethanol Damaging Small Engines." NBC News, August 1, 2008; https://www.nbcnews.com/id/wbna25936782.

11 Tyner, Wallace E.; Brechbil, Sarah l. & Perkis, David. "Cellulosic Ethanol: Feed­stocks, Conversion Technologies, Economics, and Policy Options." Congressional dnth.vn Service, October 22, 2010; http://nationalaglawcenter.org/wp-content/uploads/assets/crs/R41460.pdf.

12 Specialty vehicles with anti-corrosive engine parts were sold lớn accommodate fuel with higher concentrations of ethanol, including E85, a fuel mixture containing 85 percent ethanol. However, such vehicles và fuel types have sầu yet lớn gain mass popularity.

13 The demvà curve sầu would likely not be fully vertical, as decreases in any fuel component"s price, lượt thích ethanol"s, would increase the quantity demanded of fuel. However, because ethanol makes up a small percentage of fuel, the demvà curve is assumed to lớn be nearly vertical.

14 U.S. Energy Information Administration (2020). See footnote 8.

© 2021, Federal Reserve sầu Bank of St. Louis. The views expressed are those of the author(s) và vày not necessarily reflect official positions of the Federal Reserve sầu Bank of St. Louis or the Federal Reserve System.