COVID-19 is rapidly changing our world, and our responses to the pandemic are affecting many markets, one of which is the market for orange juice.
What is happening to demand?
The immune-boosting properties of orange juice are well known and with the contagious properties of COVID-19, the demand for orange juice is increasing.
What is happening to supply?
The production of oranges is decreasing as plantations are implementing social distancing, which is decreasing worker hours available to harvest the orange crop. Transportation options for orange juice are also diminishing, with fewer tanker spaces and flights available. The decrease in the supply of oranges and the decrease in available transportation to markets is decreasing the supply of orange juice.
What will happen to the equilibrium price?
An increase in demand and a decrease in supply creates a shortage of orange juice at the original price. The price of orange juice rises to eliminate the shortage.
Can we say anything about the equilibrium quantity?
An increase in demand increases the equilibrium quantity of orange juice, but a decrease in supply decreases the equilibrium quantity. Because we don’t know the relative size of the changes in demand and supply, we can’t say which of the two effects is stronger. The equilibrium quantity of orange juice might increase, decrease, or remain the same.
Let’s look at a graph of the orange juice market.
Now take a short quiz to check that you understand what you just read.
Multiple Choice Quiz – COVID-19 and the Market for Orange