The Effects of a Hurricane on the Principles of Supply and Demand
The principles of supply and demand state that supply is the availability of a good or service desired by a consumer. Demand is a measure of the public’s desire for that good of service. As a rule of thumb, if something is very popular, or very necessary, it generally will be in high demand. The demand for a specific good or service can literally change overnight. Case in point when a hurricane enters the Gulf of Mexico, certain products become in high demand especially along the United States Gulf coast. Sudden increases in demand can have both positive and negative results for the producer as well as the consumer.
Some of the products that will suddenly go into high demand are batteries, flashlights, gasoline, gas cans, canned food etc. With this sudden increase in demand, producers will likely order and stock more of these items than they ...view middle of the document...
So while items of all sorts were in huge demand such as chainsaws, generators, and building materials many businesses were unable to get the items delivered to them that were in such high demand due to the closed and damaged roads, and buildings. Even though the demand was high and the supply was adequate, there were limited means to bring the supply to the demand.
On the flipside, even if the hurricane does not hit, the supply and demand will still be affected greatly. Because what happens more often than not with hurricanes that enter the gulf is that they do not make land fall where predicted, or they do not make as severe of an impact as initially thought, or they do not make landfall at all. When this happens suddenly the market becomes flooded with products as producers and consumers alike now have more products on hand than needed. For the producer this means more products on hand than they can sell, and for the consumer an excess of products they will not use. Of course the advantage of the sudden increase in demand is that most producers make a lot of money in a very short time. However, with a sudden increase in demand many producers have to increase the amount of products that they produce and/ or stock increasing their overhead costs.
When the hurricane turns out to only be a scare consumers now have an over- abundance of products they will likely not fully use for a long time. This thus results in a decrease in demand. And since a lot of producers have overstocked their usual inventory they are forced to lower their prices as a result to move out this excess inventory, sometimes resulting in a net loss of profit.
So regardless of whether or not a hurricane hits it can have both positive and negative impacts on the supply and demand. As long as neither the producer, nor the consumer get too carried away with their supplies or demands the negative impacts should be minimal.
S = Supply
P1= Prices without hurricane threat
P2= Prices with hurricane threat
Q1= Quantity without hurricane threat
Q2= Quantity with hurricane threat
D1= Demand without hurricane threat
D2= Demand with hurricane threat