Question

In the winter of 2006–2007, unusually cold weather led to a huge shortage of snowmobiles all over Minnesota. Fully explain how the shortage came about, how the "invisible hand" dealt with this shortage and provide a graph to illustrate your explanation.

Answer 1

Basically, in summary, If all of a sudden, an unexpected change occurs, which makes demand quickly rise, such as cold weather and snow for snowmobiles in this example, it brings about unexpected issues.
The shortage occurred because the producers had anticipated less demand than had occurred, maybe because "unusually cold weather" doesn't occur often in that region, and the producers may not have made or wanted to make excess supply of snowmobiles in the first place, due to extra costs, and an anticipated, "regularly cold" winter.
However, since it was colder than expected, everyone wanted a snowmobile, and so they were quickly sold out, or in short supply.

When the suppliers finally realized this, the "invisible hand" came into place..
The invisible hand is the natural demand, supply, & price concept, in which, when demand increase, supply decreases, but price reacts to level out the demand and supply by rising (as in ~ the suppliers finally realized they needed to increase price to stop the shortage of snowmobilese) ~ and so the invisible hand came into action.

Now, because of an increased price, fewer people bought snowmobiles, and so the shortage would have stopped, while income still came in, as those who were able to afford the snowmobiles, still bought them.


~ As for the diagram, draw a Supply and Demand diagram, involving a shift in demand, and then another diagram, or the same diagram, draw a supply and demand diagram involving an increase in price, which moves demand to the left.


Hope that helps!!