Wednesday 22 September 2021

Demand and the price of NFL team branded face masks

The demand for face masks in New Zealand remains high, with face masks required to be worn in most indoor spaces in Level 2 and Level 3 lockdown. However, the high demand New Zealand is experiencing isn't replicated everywhere around the world, and we can actually benefit from it.

Yesterday, while online shopping for an NFL jersey (go Panthers!), I saw this amazing deal:

Yes, that is a pack of three branded face masks for US$1.99, down from the 'regular' price of $24.99. Naturally, I bought some. However, it is worth thinking about why the price dropped so dramatically.

In the simplest terms, it comes down to supply and demand (or rather, just the change in demand). When masks were required in some states in the US, then it made sense for some NFL fans to buy masks branded with their team logo. However, now that masks are no longer required, demand has fallen dramatically. This is illustrated in the diagram below. When demand was high (D0), the equilibrium price of masks was high (P0 = $24.99). But now that demand is lower (D1), the equilibrium price of masks has fallen (to P1 = $1.99).

The NFL shop isn't lowering prices out of a sense of goodwill towards consumers. And no one is forcing them to lower prices. Clearly, the NFL shop found themselves overstocked and is looking to get rid of their excess stock. Lowering prices means that they sell more than if they had kept the price high - if they had kept the price at P0 after demand had fallen to D1, the quantity demanded would have fallen all the way to Qd. The result of NFL shop trying to move face masks that there is little demand for in the US is a ridiculously low price for everyone.

The lower price is an especially great deal for those of us in countries where masks are still required. We get to pay the low U.S. price, even though our demand is still high. That's what I'd call maximum transaction utility.

No comments:

Post a Comment