Question

During the novel coronavirus (COVID-19) pandemic, the Singapore government introduced lockdown measures and travel restrictions that severely reduced the trade of many small businesses. Singapore government is concerned about business closures, loss of income and unemployment in the markets concerned and is considering further interventions especially as the danger from the virus is beginning to subside. Using the demand-supply model, explain these phenomena in one or two markets of your choice. Advise which market interventions, if any, government should conduct in these markets and why.

Answer 1

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The economic impact of the Novel Corona Virus pandemic is what is confusing most economists at this time. This they believe will bring in the biggest recession in Singapore and across the world, wherein the demand for goods and services is falling rapidly as a result of the lock down measures which have been introduced in the country and beyond.

The economy of Singapore thrives on numerous industries such as tourism, education, recreation etc all of which have been severely impacted by the virus itself. The demand for goods and services in each of the sectors listed is contracting and the resultant is that the total production has also declined and unemployment and low income would prevail without the government taking significant measures to resolve the issue.

We have drawn the following demand and supply graph which will help in understanding, the impacts of the virus on the industry for all of the above listed markets i.e. tourism, education, recreation

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In the above diagram, we see that how prices have reduced from initial to reduced points as indicated. Quantity demanded and produced therefore have also declined which is the reason for price decrease. This has also shifted the equilibrium from initial to reduced equilibrium.

It is important to know, that the demand curve is downward sloping as it indicates higher buying at lower costs and the supply curve is upward sloping as it indicates more profits at higher prices for producers.

The government of the day, should increase spending and reduce taxes on education, tourism as well as the recreation industry which happen to be a major source of income. It should also try and improvise on allowing these to function with new norms and provide direction to the industry as an overall. A tax relief will help in consumers demanding more for these goods once the lock down is lifted and would provide the much-needed relief to the economy as a whole. Also, during lock down providing for people who are not seeing their income rise as a result of the pandemic is also equally important.

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