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For the Writing Assignment, you need to read the article “The Law of Supply and Demand Isn’t Fair” by Richard Thaler, published on May 20, 2020 by The New York Times. The article discusses the prices of essential goods during the early stage of the COVID-19 outbreak. (Provided in the uploaded files). The article illustrates a number of economic concepts that we have discussed in class. You should write a short narrative essay that analyzes the article using the tools developed in class. Below is a guideline on how the essay should be structured:
Your submitted essay should be saved as a PDF
The recommended length of the essay is 3-4 double spaced pages, including graphs, but shorter or longer essays are welcome as long as they develop the content effectively.
Use 12 point font, and 1-inch margin all around.
You do not need a “reference” page unless you use resources outside this article. The above article should be your primary source, but you may choose to refer to your textbook, lecture notes, or other articles. If so, you need to cite the references following a standard citation format (e.g., APA, MLA, and Chicago). Some sample citations are available on Canvas.
Your essay SHOULD address ALL points/questions below and include TWO graphs.
1. Use the first one or two paragraph(s) to introduce your essay, say what you are going to discuss, and reference and summarize the article.
2. The article discusses the prices of a few essential goods during the COVID-19 outbreak. In the next paragraph of your essay, discuss how COVID-19 affects the market supply and demand of essential goods such as hand sanitizers and masks during the early stage of the crisis (March and April 2020). Address the following points and provide an analysis:
Why did the market supply and demand of these goods change during this time? Explain the contributing factor(s) clearly.
Using a S-D graph (Figure #1), show the effects of these factors on the supply curve and demand curve.
According to the law of supply and demand, what should have happened to equilibrium price and quantity of the goods? Show the effects on your S-D graph and provide an explanation.
Should there be any shortage or surplus of these goods according to the law of supply and demand?
3. According to the article, the prices of some essential goods did not change in the same way as predicted by the law of supply and demand. In a passage, the article reads: “Fairness norms help explain the breakdown of supply chains of medical equipment in the coronavirus crisis.… When the need for the masks surged, these suppliers were not allowed to raise the price, even if inclined to do so.” Addressing the following points and provide an analysis in the next paragraph(s) of your essay:
Using another S-D graph (Figure #2), show what happened to the price and quantity of the goods when the society practiced fairness pricing.
In your graph, illustrate why consumers might have a difficult time finding essential goods in this case.
4. Perform a welfare analysis on fairness pricing. Specifically, you need to address the following points:
In your Figure #2, find the areas that represent the sizes of consumer surplus and producer surplus under fairness pricing. How did fairness pricing affect consumer and producer surplus in the markets for essential goods, compared to the case when goods are priced according to the law of supply and demand? Explain.
Are the markets more efficient when the goods are priced according to fairness norms or the law of supply and demand?
Who might benefit from fairness pricing and who is hurt?
Do you think it is a good idea to apply fairness pricing on essential goods during the COVID-19 outbreak?
5. Conclude your essay in one last paragraph.