Microeconomics Question

Required Reading: Ward, M, and Chrysanthos, N 2020, "Higher than usual demand' for toilet paper in NSW supermarkets', Sydney Morning Herald, 26 June. 'Higher than usual demand' for toilet paper in NSW supermarkets Premier Gladys Berejiklian has asked shoppers to remain calm after reports of bare toilet paper shelves in NSW following the reinstatement of product limits in Victorian supermarkets. Toilet paper was in short supply at Coles and Woolworths at Roselands in Sydney's south-west on Thursday, the Herald has been told. Posting on social media, shoppers also complained of empty shelves at Coles Merrylands and Woolworths Leichhardt in Sydney, as well as Coles Toronto in Lake Macquarie. On Wednesday afternoon Coles, Woolworths and IGA said they would reinstate product limits for toilet paper, hand sanitiser, paper towels, flour, sugar, pasta, minced meat, long-life milk, eggs and rice at all their Victorian stores.| Coles, on Friday, reintroduced one-pack purchase limits for toilet paper and paper towels across all of its stores, including Coles online. "We ask that customers continue to shop normally so that everyone can have access to the food and groceries they need," a spokesperson said. Costco, which has stores at Marsden Park, Crossroads and Auburn, has also reintroduced a one- per-person limit on its toilet paper packs nationwide. It is believed the panic buying, which was witnessed earlier in the pandemic, is being caused by an uptick in coronavirus cases in Melbourne over the past week. Victoria reported its ninth day of double-digit case growth on Thursday, with 33 new cases."We'll keep a close eye on demand over the coming days. We continue to ask customers to buy only what they need, as there is plenty of stock to replenish our shelves.\" Questions: 1. Using the demand and supply model: (a) Illustrate the market equilibrium for toilet paper before the pandemic. (b) Explain the impact of the COVID-19 pandemic on the market for toilet paper. Illustrate this on your diagram from part (a). (c) Explain the impact of the restrictions brought in by supermarkets on the market for toilet paper. Illustrate this on a new diagram. 2. Evaluate the outcomes in the market for toilet paper in terms of Pareto efciency, fairness, and the effect on the consumer surplus, producer surplus, and deadweight loss if: (a) no restrictions are imposed by supermarkets. (b) purchase-limit restrictions are imposed by supermarkets. Include appropriate diagrams to illustrate your answers. 3. Suggest and explain two other ways the problem in this market could be solved. Evaluate these alternative solutions in terms of Pareto efciency and fairness. Coles, on Friday, reintroduced one-pack purchase limits for toilet paper and paper towels across all of its stores, including Coles online. "We ask that customers continue to shop normally so that everyone can have access to the food and groceries they need," a spokesperson said. Costco, which has stores at Marsden Park, Crossroads and Auburn, has also reintroduced a one- per-person limit on its toilet paper packs nationwide. It is believed the panic buying, which was witnessed earlier in the pandemic, is being caused by an uptick in coronavirus cases in Melbourne over the past week. Victoria reported its ninth day of double-digit case growth on Thursday, with 33 new cases. NSW Premier Gladys Berej iklian said on Friday that shoppers need to "stay calm" as there was no need for items to be stockpiled. "Please continue to maintain your calm; continue to do what you've been doing NSW is doing incredibly well," Ms Berejiklian said, adding that she didn't "blame" people for being concerned as product limits were reintroduced in Victoria amid an uptick in cases. "We all have to be on our guard, but we certainly, certainly don't need to change our normal buying habits. So please continue with your normal buying habits, there's nothing to worry about." A Woolworths spokesperson said they had seen "higher than usual" demand for toilet paper in parts of NSW, and were monitoring the situation. \"We've seen pockets of higher-thanusual demand for toilet roll across parts of NSW [on Thursday], but not anywhere near the levels we saw in Victoria, " the spokesperson said