It seems like panic buying and the fact that we are at home more (and are using more TP there and less at work) are the main reasons (and they may be related). It is costly for the makers of institutional TP to get their stuff to stores since it is not currently set up for the consumer market. It reminds me of The Law of Increasing Opportunity Cost. That is the idea that as you try to produce more of one good (A), you have to keep giving up more and more of another good (B), to get 1 more unit of A. This is because different resources are better suited to different productive activities. More on this below.
Excerpts:
"The problem, like the virus that spawned it, is global. In Australia, a cafe began accepting rolls of TP as payment — a cup of coffee will run you three rolls. In Hong Kong, armed crooks held up a supermarket; all they took was 600 rolls of the soft stuff. A pet store in Dornburg, Germany, last week set up an outdoor toilet paper drive-through in a parking lot when the owner was able to obtain a massive shipment.
Nothing seems to be unspooling in the right direction for a commodity that rarely gets much attention: In Hutchins, Tex., a tractor-trailer hauling a full load of toilet paper crashed and burned last week on Interstate 20. Rolls, most charred or reduced to cinders, splayed all over, shutting down the roadway.
Demand is as flush as supply is bare. Americans have spent $1.4 billion on toilet paper in the past four weeks, a 102 percent increase from the same period a year before, according to data collected by IRI, which tracks retail sales based on the bar codes on products. (Prices have been quite stable over that time.) Only hand sanitizers, disinfectant wipes and the like have seen substantially bigger sales boosts."
"So why do the TP shelves remain great banks of emptiness more than a month after many stores reported that customers were hoarding the stuff?
The leading theories are:
1. We’re buying too much toilet paper because we’re panicked there won’t be any when we need it.
2. We’re actually using way more than usual at home because most people are sheltering in place rather than using the facilities while at work, school, restaurants or other public places.
“The third theory is that both of those are right,” said Doug Baker, vice president at the Food Industry Association, which represents retailers, distributors and producers — the whole chain of businesses from the factory to you.
It’s a three-part problem, Baker said. Part One, hoarding: “We have actual situations across the country where people are buying an entire case,” he said. “Demand became unprecedented and still is.”
That’s something the industry knows well — customers regularly wipe out the toilet paper aisle ahead of big snowstorms and hurricanes, and the system can quickly rebound. But this crisis has tested limits because the spike in demand is nationwide, has been going on for some time, and is open-ended.
Part Two, displacement. The same number of people have the same need for toilet paper. But the industry is not set up for a wholesale move from work and school to home; home TP is softer, packaged in smaller rolls and is made and distributed by different companies than are the jumbo rolls seen in offices, institutional settings and public restrooms.
Part Three, adapting on the fly. Baker said the industry is changing, fast. Manufacturers have added hours at the factories and last week, the companies that make the industrial stuff made a deal with the country’s big food distributors to get their product into grocery stores.
But it’s not as simple as putting the big commercial rolls onto trucks. Most industrial rolls don’t have bar codes on the package, so stores have trouble stocking them. They’re adapting by putting little code stickers, like the ones stuck onto pieces of fruit, on the commercial rolls.
Grocers contend that, as Ira Kress, interim president of Giant Food, put it: “There is not a supply shortage, but it does take some time for the manufacturing process and our supply chain to catch up from the significant spike in demand.”
Giant’s suppliers “are shipping far more product to us than normal, but we are also selling far more product than normal,” Kress said. “Please only purchase what you need for this week as opposed to stocking up.”
It is unlikely the shortages will go away soon."
Here are some basic terms that economists use to discuss this issue:
Opportunity Cost-The value of the best foregone alternative. There is no such thing as a free lunch. If we want to build one more skyscraper, we may have to give up one submarine, since there may not be enough steel to go around (steel is scarce!).
The law of increasing opportunity cost-As more of a particular good is produced, the opportunity cost of its production rises. Why is the law of increasing opportunity cost true? Different resources are better suited to different productive activities. This is just about the same as saying people have different abilities, like some are more entrepreneurial and some are more bureaucratic.
Let’s assume that we have society with five workers who can make either of two goods, candles or
shoes. Now the best candle maker will not necessarily be the best
shoemaker and some candle makers will be better than others. This simply means
that workers have different abilities.
In the real world, the best doctor would not be the best
lawyer. Some plumbers are better than others.
In the table below, the number of candles OR shoes
that each worker can make in a day is listed.
|
Worker
|
Candles
|
Shoes
|
|
I
|
7
|
3
|
|
II
|
6
|
4
|
|
III
|
5
|
5
|
|
IV
|
4
|
6
|
|
V
|
3
|
7
|
Again, the workers have different abilities, just as they do
in the real world.
What are all of the
combinations of candles and shoes that this society can make? If all
the workers make candles, they can make 25 (just add up how much each worker
can make). How many shoes? ZERO, since each worker spends all day in the candle
factory (this is combination A in the table below).
If we want to make some shoes, the first worker we would
tell to stop making candles, if we are rational
and trying to get the best deal, would be worker V. So we gain 7 shoes and lose 3 candles. That
is why combination A is 22 and 7. Worker V no longer makes candles since they
are making shoes. So the opportunity cost of
making a shoe is some number of candles (and vice-versa).
The rest of the combinations that show what would happen if
we kept moving workers out of candle making and into shoe making is in the
table below.
|
Combination
|
Candles
|
Shoes
|
|
A
|
25
|
0
|
|
B
|
22
|
7
|
|
C
|
18
|
13
|
|
D
|
13
|
18
|
|
E
|
7
|
22
|
|
F
|
0
|
25
|
Now what happens to the opportunity cost as we move from
combination A to combination B? Then combination B to combination C, and so on?
The table below shows this:
|
Change
|
Candles Given Up
|
Shoes Gained
|
Candles per Shoe
|
|
A to B
|
3
|
7
|
0.429
|
|
B to C
|
4
|
6
|
0.667
|
|
C to D
|
5
|
5
|
1.000
|
|
D to E
|
6
|
4
|
1.500
|
|
E to F
|
7
|
3
|
2.333
|
By moving from point A to point B, we give up 3 candles to
gain 7 shoes. The cost of each shoe in candles is .429 (3/7). Then we give up 4
candles to get 6 shoes, with each shoe costing .667 candles. The more shoes we try to produce, the more candles that
have to be given up to get each shoe. So the opportunity cost of
producing shoes rises.
This is called the law of
increasing opportunity cost.
The law of increasing opportunity
cost-As more of a particular good is produced, the opportunity cost
of its production rises. (see how the numbers rise in the “Candles per Shoe”
column in the table above)
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