Chips are down

Mention the words chips to most people and fried potatoes would come to mind.

 

Suggesting that there is a growing shortage of chips would no doubt generate a stampede to the local supermarkets. This sudden rise in demand would double up the pressure on farmers to increase supply and within a short time the price of potatoes would soar as supermarket shelves emptied.

Consumers seem to lose all sense of proportion when items they consider are necessities are in short supply. Even if prices rise exponentially, forages to seek out and purchase chip potatoes would likely rank with the pursuit of gold in the Klondike.

It all comes down to elasticity. If there are substitutes for consumer items, shortage of supply will simply encourage buyers to seek out the substitutes. Problems arise when there are no substitutes. Frying chopped carrots or parsnips just doesn’t hit the spot.

This example servers to illustrate the significance of the present shortage in supply of another, non-organic variety of chip, the computer chip.

Toyota announced a 40% cut in production of new cars in September and more recently Apple iPhone announced that production of the new iPhone 13 would be affected, in both cases, by the continuing supply issues for computer chips.

The pandemic bought huge swathes of the global economy to a grinding halt, and lockdown restrictions extended this process for well over a year.

Backlogs of items waiting to be shipped languished in Asian ports. When the brakes started to come off, it was if the global economy had to start over. Goods released had to begin their journey to Europe, the trips leaving manufacturers with dwindling stocks until much needed containers were delivered.

It will take time for the global network that manufactures and supplies computer chips to meet outstanding orders and restore some semblance of normality. Until then, we should expect shortages in the supply of consumer items that rely on computer chips.

If you have electronics on your Christmas list you might be advised to buy now, if you can find a supplier in stock.

Computer chips are not down, but it will be some time before supply catches up with demand. Time to ease frustrated expectations, anyone for chips?

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