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A severe shortage of vets has made it challenging for clinics to hire and retain talent,
despite offering significantly higher salaries. It typically takes around 8 years to become a vet. To attract new talent, clinics are working towards offering better work-life balance and mentorship opportunities. Since the COVID-19 pandemic, pet ownership has risen by about 30 percent, despite calls for more responsible pet ownership.

Adapted from CNA, 22 January 2024

(a) Explain why a severe shortage of vets still exists despite clinics offering significantly higher salaries. [10]

Why there was an initial shortage of vets

There was an initial shortage of vets likely due to an incorrect pricing for vets. The equilibrium wage for vets should be at Pe where Dd0 = SS0. Instead, wages initially may have been at Pactual where Qd > Qs. This results in a shortage of vets of QdQs

Why shortage of vets still exists despite significantly higher salaries

This initial shortage is what would have likely resulted in an upward pressure exerted on wages of vets, pushing wages upwards from Pactual to Pactual2.
As wages go up, the quantity supplied of vets will increase as more will be encouraged to join the industry. However, as supply of vets is price inelastic, the increase in wages will not result in a large increase in quantity supply (or we can explain that the process does not happen quickly).
The higher prices would have resulted in the shortage being reduced from QsQd to Qs2Qd2.

However, as the process takes a long time due to the training time required for vets, in the meanwhile, derived demand for vets would have increased due to an increase in demand for pets during the pandemic.

This would have caused demand for vets to increase from DD0 to DD1.

The equilibrium wage will now be at Pe3 where DD1=SS0, while the actual wage is at Pactual2. At Pactual2, the quantity supplied is at Qs2, while the quantity demanded is at Qd3. This results in a still severe shortage of Qs2Qd3.