As consumers around the world look for any way they can to fend off the deadly coronavirus, drinking copious amounts of orange juice has emerged as one of the most popular strategies. Packed full of immune boosting vitamin C, sales of orange juice have increased dramatically.
In keeping with the fundamental rules of supply and demand, the price of frozen orange juice has responded to its increased popularity by increasing to $1.214 a pound. That is a 25% increase since the start of January!
Trading in New York on the International Commodity Exchange, frozen orange juice has emerged as one of the most profitable commodity investments this year. The market for orange juice is however notoriously volatile, with consumer demand very susceptible to clever advertising campaigns by rival products. In addition to that, the demand for orange juice in the US has actually been declining in recent years as consumers shift their preferences towards water and other sugar-free alternatives.
In the short term at least, prices are likely to remain high and perhaps even climb higher, as the impact of the coronavirus is hitting supply just as much as it is demand. The outbreak of Covid-19 is wreaking havoc across the whole world, leading to labour shortages and disruptions to transportation networks. With no-one to pick the oranges, or drive them out of the orange farms, supply will also decrease, putting further upward pressure on the price of orange juice.
THINK LIKE AN ECONOMIST!
Q1. Why is the price of orange juice increasing?
Q2. With reference to the article, draw a supply and demand diagram to show the new equilibrium price and quantity of orange juice.
Q3. Besides labour shortages, what other factors are likely to affect the supply of orange juice?
Q4. What other products do you think are experiencing an increase in consumer demand? Explain why.
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