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Analysis on: High prices for oranges overshadowed by virus fears during harvest

Tamaulipas, the fishing capital of Mexico, is one of Mexico's 32 states and is located in "La Huasteca," a fertile lowland area. Tamaulipas is well-known for its optimal agricultural climate, which may be considered as a boon in terms of the revenue generated by being Mexico's primary producer of an ancient cereal known as sorghum. This article explores the impact of the COVID-19 virus outbreak on the price, demand, and supply of Valencia oranges produced in Tamaulipas

Valencia oranges are citrus fruits known for their high Vitamin-C content as well as immune-boosting properties. The COVID-19 virus is a deadly respiratory infection that can be easily transmitted from person to person. Someone with a high level of immunity will be less vulnerable to the virus than someone with a low level of immunity. If someone contracts the virus and has a high level of immunity, the person is likely to recover quickly or not contract the virus at all, as strong immunity can be viewed as great protection from the virus. The COVID-19 virus outbreak has boosted demand for Valencia oranges, which as a result has forced producers to pass on the costs to the consumers in the form of higher prices. The increase in demand is due to consumers' fear of contracting the virus. Due to their fear of contracting the virus, consumers regard Valencia oranges as a necessity that must be consumed in order to boost their immunity and thus be somewhat protected against the COVID-19 virus.

This commentary will analyze how the market for Valencia oranges, which has been subjected to a variety of variations as a result of distinct variables, will cope in order to achieve market equilibrium. The analysis will be carried out by focusing on the key economic concepts of scarcity and choice.

Figure 1: Demand curve for Valencia Oranges

As previously stated, there has been an increase in demand for Valencia oranges in Tamaulipas, as illustrated in the above diagram (figure 1). The initial quantity demanded for Valencia oranges was at Q1, where the market achieves a state of market equilibrium at point A. This is where D1 intersected S1 and the quantity supplied equaled the quantity demanded. However, the market is no longer in an equilibrium state because there has been a significant increase in quantity demanded from Q1 to Q2. As previously stated, the increase in demand is due to the oranges' immunity-boosting properties, which has prompted consumers to consume them in order to gain some protection against the COVID-19 virus. This increase in demand has caused a disequilibrium in the market, as the quantity of Valencia oranges that the consumers are willing and able to purchase at price P1 is more than the quantity of oranges available. To put it another way, the quantity of Valencia oranges demanded at Q2 is greater than the quantity supplied at Q1. This essentially means that there is excess demand for Valencia oranges in the market, implying that there is a shortage of Valencia oranges.

The law of demand must be implemented in order for the market to return to a state of equilibrium and for producers to deal with the scenario of soaring demand for Valencia oranges.

The law of demand stipulates that as price increases, quantity demanded decreases and vice versa, ceteris paribus.

Figure 2: Supply and Demand curve for Valencia Oranges

As previously stated, there has been an increase in demand for Valencia oranges in Tamaulipas, as illustrated in the above diagram (figure 2). We can deduce from the diagram that the price of Valencia oranges has increased from P1 to P2 (5500 Pesos). Linking this to the law of demand, which states that when price increases, the quantity demanded decreases, ceteris paribus, this will operate as an incentive for both consumers and producers to adjust their economic behaviors. As a result of the increased demand as well as the increased price, producers will be incentivized to supply more Valencia oranges in accordance with the law of supply, which stipulates that as the price increases, so does the supply, ceteris paribus. As a result, the quantity initially supplied at Q1 is increased to Q3 on the supply curve S1. However, due to the increase in price from P1 to P2, this has a direct impact on the quantity demanded of Valencia oranges because there would be fewer consumers willing or able to consume the oranges. This is in accordance with the law of demand, which stipulates that as price increases, quantity demanded decreases, ceteris paribus. As a result, the quantity demanded for Valencia oranges decreases from Q2 to Q3. These consumer and producer incentives will aid the market in reaching a state of equilibrium in which the quantity demanded at new equilibrium point B and new equilibrium price P2 is equal to the quantity supplied, which is the point at which the D2 curve intersects the S1 curve. Therefore, the market for Valencia oranges moves to a new equilibrium point B in response to an increase in quantity demanded.

Zahie Hosain
Shiv Nadar School