Reference no: EM133274176

Please note the following case study describes the economic conditions back in October 2020. After transforming the fortunes of hand-sanitiser and soap producers, the pandemic looks set to do the same for another previously unheralded industry - the manufacturers of outdoor heaters. A wave of new restrictions on indoor gatherings in western countries heading into winter has set off a scramble for heaters that will allow people to socialise safely - and warmly. Buyers range from households keen to meet with friends and family outside to pubs, bars and restaurants desperate to attract enough customers so they can stay in business through to the spring. Heaters aimed at domestic use retail for between £50 and £100, but prices can reach up to £800 for higher-end products. "People are becoming less price sensitive," said Paul Morey, chief executive of Herschel Infrared Heaters, a Bristol-based manufacturer and supplier. However, manufacturers and distributors the Financial Times spoke to in the US, UK, Australia and China said that the record level of demand risked pushing a supply chain dependent on shipping the bulk of heaters from Asia's largest economy to breaking point. Manufacturers determined their production schedules six months in advance, and none of them saw this surging demand coming. Steve Levy, managing director of Heat Outdoors, a Hertfordshire-based distributor, said Chinese manufacturers that typically deliver gas heaters within six to eight weeks can now only do so by February or March. As a result, the company resorted to paying for 1,000 units to be flown in last weekend, even though rates for air freight have trebled.

1.With reference to price elasticity and income elasticity, comment on the consumer demand for outdoor heaters before and during the pandemic.

2.With regard to the costs and determinants of supply, how was the production of outdoor heaters affected by the pandemic?

3.During the pandemic, do you think the prices of outdoor heaters rose or fell? Use a supply and demand diagram to illustrate why the prices changed