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In practice people have been back in factories doing work since summer of last year. If we had changed absolutely nothing, then the "supply gap" would have been

by rtpg 6y ago

In practice people have been back in factories doing work since summer of last year. If we had changed absolutely nothing, then the "supply gap" would have been just those 3 months. But what happened instead was everyone changed their plans for all of 2020/2021 and cancelled like all their orders. So everyone downstream handles that by shutting stuff down, firing people, etc. But 3 months later everyone shows back up and is like "oh wait no actually give us the normal production back". Meanwhile all your laid off staff is just working elsewhere. I'm also a layman, but my feeling has been that the "stop everything! no wait start everything back up" has been way more of an issue than the actual production stoppage (which only was a couple of months! Remember how everyone was dragged back into work a couple months into the pandemic?) I'm sure I'm extremely simplifying things here though and might be outright wrong though.

slg 6y ago
>If we had changed absolutely nothing, then the "supply gap" would have been just those 3 months. It wouldn't work like that because demand increased and supply decreased at the same time creating a backlog that one would expect to last longer than the period of decreased supply. Let's make up some numbers to show this. Imagine normal supply and demand is for 100 units per month. The pandemic hits and supply is now at 0, 25, and 50 for the next three months before returning to normal. Meanwhile demand goes to 75, 100, and then sticks at an elevated demand of 125. In those three months, the industry has produced 75 units, but the market needed 300 units creating a built up demand for an additional 225 units that doesn't simply go away. That backlog can never be satisficed as long as demand stays elevated and supply is normal. The suppliers actually have to increase production beyond both normal demand and current demand. Maybe they are able to adjust and produce 150 units per month starting in month four. That gives them a surplus of 25 units a month which means it is still another 9 months before all the built up demand is satisfied. It would therefore take a full year before the impact of that 3 month disruption dissipates. That is obviously a rudimentary example, but it shows how a combination of decreased supply and increased demand can cause issues that last longer than the change on either side of the market.
- deleted 6y ago
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by rtpg 6y ago

slg 6y ago

>If we had changed absolutely nothing, then the "supply gap" would have been just those 3 months. It wouldn't work like that because demand increased and supply decreased at the same time creating a backlog that one would expect to last longer than the period of decreased supply. Let's make up some numbers to show this. Imagine normal supply and demand is for 100 units per month. The pandemic hits and supply is now at 0, 25, and 50 for the next three months before returning to normal. Meanwhile demand goes to 75, 100, and then sticks at an elevated demand of 125. In those three months, the industry has produced 75 units, but the market needed 300 units creating a built up demand for an additional 225 units that doesn't simply go away. That backlog can never be satisficed as long as demand stays elevated and supply is normal. The suppliers actually have to increase production beyond both normal demand and current demand. Maybe they are able to adjust and produce 150 units per month starting in month four. That gives them a surplus of 25 units a month which means it is still another 9 months before all the built up demand is satisfied. It would therefore take a full year before the impact of that 3 month disruption dissipates. That is obviously a rudimentary example, but it shows how a combination of decreased supply and increased demand can cause issues that last longer than the change on either side of the market.

deleted 6y ago
[deleted]