Question

The tragic and ongoing Coronavirus pandemic highlights many economic issues we have recently covered in class, including price controls, public goods, and externalities. The purpose of this extra credit assignment is to give you an opportunity to think about and write about these the above economic topics as they relate to the management of the Coronavirus pandemic. Here is the assignment:

1. Public goods

a. Explain the public goods problem

b. Explain the solution to the public goods problem

c. Provide four examples of public goods that are instrumental in managing / solving the Coronavirus outbreak (one example of a public good is World Health Organization)

d. Comment on how effective you think these public goods are currently functioning. What could be done to improve their functioning.

2. Price controls – there is currently a lot of information in the media about states competing for personal protective equipment (PPE) in the marketplace, as well as a spike in prices for these goods.

a. Draw a S&D graph showing an analysis of rising PPE prices

b. Show the potential impacts of a price control on PPE

c. Do you think price controls should be imposed? What are the advantages and disadvantages?

d. Should price controls be imposed on other goods, such as food and other essentials. Why or why not?

3. Externalities

a. Explain the varies externalities associated with social distancing (or violating social distancing rules).

b. Discuss how social distancing might create externalities for the economy.

c. Draw a diagram showing an analysis of one of these externalities.

Answer 1

1. Public goods are those goods which are consumed free cost and have the features of non-rivalry and non-excludability.

a. The major problem of pubilc good provision is the problem of market failure, that is arising out of positive externality and free ridership along with the problem of tragedy of commons. These all violates the rule of Marginal Social Cost = Marginal social Benefit as posititive externality will bring a situation in which MSB>MSC.This can create ineffeciencies in the market economy.

b.The solution to this market failure of public goods is that the proper enforcement of laws, deciding the allocation of propert rights,charging a nominal fees in enjoying those public goods, mainataining a guard in checking and preventing tragedy of commons , i.e, the over usage of free resorces and thereby depleting it etc.

c. Examples of public goods in managing coronavirus problem are providing free masks, free sanitizers, free checkups in public hospitals, services of medical professionals etc.