Surgical Masks Price And What We Can Learn From It

People Wearing Masks Outside. Photo by Macau Photo Agency

The CoVID-19 pandemic has certainly affected almost every country as of May 2020. Physical Distancing has been used to cut off the chain of infection and the use of masks has been widely encouraged to prevent one from being infected or infect others. But Masks aren’t produced to be used by everyone every single time, hence stocks are reducing and prices are rising.

At the beginning of the CoVID-19 outbreak even until now, many countries suffer from masks scarcity as the stocks aren’t able to cover the demand. The scarcity leads to an increase in price which can be explained using a simple supply-demand graph.

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Ideal Supply Equal Demand State. Illustration taken from ResearchGate

Increased demand with same supply level means an increased price

From the graph above, it is a model of how supply and demand relate to each other.

Supply-Demand Shifts. Illustration taken from econlowdown.org

In graph 1, we have an illustration of what happened to most countries during the early pandemic outbreak. People started panic buying for their household stocks, foods, and medical supplies. This affects our supply-demand equilibrium negatively as illustrated in graph 1.

As the demand rose, the supply level stayed the same for a while before the manufacturer and distributor can act to the changes in demand from the people.

Masks Price Spike on Amazon. Picture by Ethan Wolff-Mann from Yahoo Finance

The manufacturer needed to increases its production quantity, which take time. In many cases, product prices return to their normal state after some time.

This happened as the manufacturer is slowly adapting to the new demand. The distributor also plays a role here, several stores induced a policy where a consumer can only buy some masks so that the stock can be properly distributed. There are ways that can be done to control the supply-demand which we’ll talk about below.

While masks price rose, many products decrease in value as the demand decreases while the supply level stayed the same. In graph 2, you can see this shift’s illustrated. We can see patterns in some products that are related to secondary and tertiary needs slowly decreases in price as people no longer bought them.

Seeing supply from a manufacturer point of view

We talked about how the manufacturer needed time to adapt to the new demand. So why the manufacturer does not produce as much as they can and stock them for when this kind of situation happened?

In a normal situation, it isn’t wise for a manufacturer to produce as many as they can. Production should be adjusted according to market demand, which is forecasted and carefully calculated by the production team. This is done to make the production activity efficient and will be profitable.

When a manufacturer produces a product, several costs are also taken into the account. Mainly two costs are incurred, Production Costs and Inventory Costs.

As the manufacturer increases their production, this means they will pay more for materials needed to produce, labor that will do the production activity, and also the facility that the manufacturer used. This is known as direct material, direct labor, and overhead costs. Inventory costs incurred when the finished product is held before it is distributed to shops. When the product quantity increases, their inventory costs also increase.

While you may have read that many firms use mass production to tone down production costs. However, the amount in which they produce is properly calculated by the manufacturer so that the sales can cover these costs, or put it simply, so that they can sustain the firm and make a profit out of it.

Understanding demand

Now let’s talk about demand, what affect demand, and why it is important.

As for the customer, demand is one aspect that affects the scarcity of a product, which also affects the price of a product. This is important for us consumers as we also contributed to product prices, especially in pandemic times like this.

A general product like masks shouldn’t be expensive as it was only needed by several segments of people before the pandemic. However, a sudden shift in the demand curve occurred when people started buying masks to protect themselves from the virus, which leads to an increase in price.

So what we can do to help with the situation is to not stock up the masks. Surgical and professional masks are for medical workers, even though we know that cloth masks aren’t as effective as surgical masks, the medical workers needed those masks more than us, as they are exposed more harshly to the virus compared to us.

BBC does a coverage about how one’s job is exposed to CoVID-19, you can check that using this site,

https://www.bbc.com/news/uk-52637008

Controlling Supply Level Using Price Controlling and Rationing

There are ways to control and maintain the supply-demand graph, two of them are Price Controlling and Rationing.

Price Control is pretty self-explanatory. However, controlling the price of a product is often harmful to both manufacturers and consumers. Take a look at this graph below.

Price Control Graph, in this example the supply is only 15 where the demand is 19. The graph is taken from Khan Academy.

Price control imposed creates a gap between demand and supply, the manufacturer would produce at a level that does not meet the demand. To put it simply, the demand won’t be covered using this strategy.

Another way to control the demand shift is to use Rationing. This term means controlled distribution, an example of rationing would be a policy where one family can only get a certain amount of masks. This strategy is done so that the distribution of a product is even and stockpiling is avoided. However, this also opens a door for unethical practices and the black market.

Preparing for Reopening

As many countries slowly reopened their countries, lifted their restrictions policy, and rebooted their economy. We don’t have to treat masks like a treasure, it will be ready, the manufacturer will respond to the situation, and will produce more according to the demand.

So do be patient for the masks supply-demand curve to go back to their original state.

To defeat this virus, everyone must be cut off from the infection chain. That means buying all the medical supplies for yourself certainly won’t help with the situation, everyone needed the same protection, and by being considerate with our actions, we are truly helping the cause to eradicate CoVID-19 from planet earth.

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