The New York Times reported earlier this week:
Mark Lewis was desperate to find monkeys. Millions of human lives, all over the world, were at stake...
The world needs monkeys, whose DNA closely resembles that of humans, to develop Covid-19 vaccines. But a global shortage, resulting from the unexpected demand caused by the pandemic, has been exacerbated by a recent ban on the sale of wildlife from China, the leading supplier of the lab animals.
The latest shortage has revived talk about creating a strategic monkey reserve in the United States, an emergency stockpile similar to those maintained by the government for oil and grain...
In the meantime, the price for a cynomolgus monkey has more than doubled from a year ago to well over $10,000, Mr. Lewis said. Scientists researching cures for other diseases, including Alzheimer’s and AIDS, say their work has been delayed as priority for the animals goes to coronavirus researchers.
The shortage has led a growing number of American scientists to call on the government to ensure a constant supply of the animals.
Let's put aside the idea of a 'strategic monkey reserve' (we'll come back to it later). A shortage arises when the quantity of some good or service demanded exceeds the quantity supplied at the current market price. This is illustrated in the diagram below. At the market price of P0, the quantity demanded is QD and the quantity supplied is QS. Since QD is greater than QS, there is not enough supply to satisfy the demand - there is a shortage.
Ordinarily, a shortage is a temporary situation. That's because the price will adjust to ensure the market ends up at an equilibrium. In this case, the price of monkeys for research should increase. As the price increases, the quantity of monkeys demanded decreases, and the quantity of monkeys supplied increases, [*] and eventually we would end up at the point where quantity demand is exactly equal to quantity supplied, which is the quantity Q1 in the diagram above, where the price has increased to P1. Notice that this is consistent with what is noted in the New York Time article, "the price for a cynomolgus monkey has more than doubled".
How does the price rise? In my ECONS101 and ECONS102 class, I describe it in the following way. There is a shortage, so some willing buyers (of monkeys) are missing out, and some of them will be willing to pay more than the current market price. Those buyers will find a seller, and ask for a guaranteed supply of monkeys, and in exchange they offer a slightly higher price. In other words, buyers bid the price (of monkeys) up. An alternative mechanism is that buyers who miss out could find a successful buyer, and offer to buy the monkeys off them for a higher price. Again, the result is that the market price of monkeys is bid upwards. The price of monkeys increases.
Anyway, let's take a step back and see how we ended up in this situation of a shortage to begin with. This is illustrated in the diagram below. The market was initially in equilibrium, where the demand curve D0 meets the supply curve S0, with price P0 and the quantity of monkeys traded was Q0. Then, the demand for monkeys increased to D1 due to vaccine firms wanting monkeys for testing. The price initially stays at P0, where the quantity of monkeys supplied remains at Q0, but at that price the quantity of monkeys demanded increases to QD. There is a shortage (between Q0 monkeys supplied and QD monkeys demanded). Notice that this diagram is actually the same as the first diagram - the only differences are that we've added the initial demand curve D0, and labelled the quantity of monkeys supplied Q0 rather than QS.
How would a strategic monkey reserve change things? First, it is worth knowing a little bit about the U.S. strategic petroleum reserve. The U.S. holds millions of barrels of petroleum in reserve, equating to more than a month's total domestic demand. If there is a 'severe supply interruption', the government can temporarily increase the supply of petroleum by making some of the reserve available for sale. If the U.S. Government did something similar for macaques, and decided that the current shortage triggered the release of monkeys from the reserve, the result would be an immediate increase in the supply of monkeys. This is shown in the diagram below. Let's assume that the government releases enough monkeys to keep the price stable at its initial levels. The supply would increase from S0 to S1, and the price would remain at P0, with the new equilibrium quantity of monkeys (determined by the intersection of D1 and S1) being Q2. There is no shortage, because at the price P0, the quantity of monkeys demanded (Q2) is equal to the quantity of monkeys supplied (Q2), including the supply from the strategic monkey reserve.
Finally, it is worth noting that a supply increase is not a usual response of a market to a shortage. It only occurs in this case if the government has a strategic monkey reserve, and uses it to deal with the shortage. That is different from shortages of toys at Christmas, because the government doesn't maintain a 'strategic Christmas toy reserve'. In that case, the price of Christmas toys would probably increase (as described above).
Is a strategic monkey reserve necessary? The answer to that question should depend on a careful assessment of the costs and benefits (and risks) of not having the reserve. However, given that the initial stages of the coronavirus pandemic revealed that there were not even enough reserves of personal protective equipment (and shortages were still ongoing nine months later), I suspect there are more important reserves that should be stood up first.
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[*] However, in the very short run, the supply of monkeys for research could be perfectly inelastic, meaning that it is totally unresponsive to price changes, and the supply curve is vertical rather than moderately upward sloping as shown in the diagram. That's because monkey breeders can't instantly increase 'production' of monkeys in response to the higher price. However, whether the supply curve is upward sloping or vertical isn't important for the rest of the explanation.
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