Answer to Question #248175 in Microeconomics for hgh

Question

a) With an increase in the r-factor of the Coronavirus, people are extremely worried and are anticipating a lockdown in their city. Hence, they have started buying some of the staples and dry ration like wheat, rice, pulses, noodles etc. in bulk. What kind of impact this development will have on the market of food and related products, discuss with the help of a diagram?  b) Gradually, the suppliers of food and related products internalized the fact and made bulk orders of the items, so that they can continue to cater this sudden unexpected increase in demand. How will this new development impact the market of food and related products, discuss with the help of a diagram? 

Answer 1

a. An increase in demand above supply will lead to increase in prices as illustrated in the graph below.

b. Supply will increase and demand will remain the same thus leading to a surplus and the price will go down.