Presented by: Rylee, Quincy, Ben, Daniel, Sebastian, Shayaan

• This is a great example of a market failure in action ( Market failure happens when the free market can’t allocate goods efficiently )

•Supply & Demand: COVID reduced supply while demand skyrocketed

•Opportunity Cost: Auto manufacturers cut orders to save money, lost profits later

•Externalities: Environmental costs of new chip fabs

•In a shortage, quantity demanded > quantity supplied → excess demand

•Price rises but still not enough supply

•Deadweight loss: Missed trades due to shortage.

• Just-in-time inventory systems weren’t resilient.

• Geopolitical risk: Taiwan-China tension & droughts made things worse.

• Market power: Few firms dominate chip production

• Needed steady chip supply during the shortage but were able to pay higher chip prices and lobby for domestic production

• Because of the chip shortage demand for electronics exceeded supply

Auto Industry (Ford, GM)

• Automobile production decreased and companies lost revenue from delayed shipments, selling less cars and cancelled orders

• Car prices went up and car availability went down negatively impacting consumers

Healthcare Sector

• Caused massive medical device shortages and delivery issues which impacted patient care as well as healthcare revenue

• Called for crisis because chip supply because healthcare was a priority

Governments

• Focused on restoring economic and national security affected by the chip shortage and responded with the CHIPS Act (costing over $50B)

Consumers

• Because the chip supply was already low and what remained was used by big companies, consumers faced increased chip prices and less chip options/availability