Question

In: Economics

Our lives have been totally disrupted by COVID 19. People have been laid off, companies have...

Our lives have been totally disrupted by COVID 19. People have been laid off, companies have been told to close and many people are working from home. In this paper I want you to discuss the impact of this crisis on supply and demand on a particular industry or product. Remember, that in microeconomics we don’t talk about an entire economy. The impact on GDP, unemployment and interest rates are macroeconomic topics, not microeconomic topics.

Choose a particular product or industry. When answering these questions, you need to conduct research to back up your opinion. Cite at least 3 articles that discuss the product or industry you have chosen.

  1. Discuss the impact COVID 19 is having on demand for the product or industry you have chosen. What factors are causing demand to shift? Explain at least two of these factors. Is demand increasing or decreasing for the product?
  2. Discuss the impact COVID 19 is having on supply for the product or industry you have chosen. What factors are causing supply to shift? Explain at least two of these factors. Is supply increasing or decreasing for the product?
  3. Draw the demand and supply curves for this product before COVID 19. Point out equilibrium. Indicate, using labels and arrows what direction demand and supply have gone since the crisis has begun. Point out the new equilibrium. You do not have to make up numbers, but you need to accurately label demand, supply, and equilibrium, both for the original market and the current market after the impact of COVID 19 .

Solutions

Expert Solution

The travel & tourism industry is severely affected by the coronavirus outbreak.

DEMAND

People are avoiding travel to different countries and cities. It is negatively impacted the travel business and has affected the tourism benefits of the affected countries. The coronavirus epidemic is putting up to 50 million jobs in the global travel and tourism sector at risk, with travel likely to slump by a quarter this year, Asia is the most affected continent, the World Travel and Tourism Council has said.

Reason for the shift of the demand curve

  1. People prefer to stay at home to be safe. This has reduced the demand for traveling significantly.
  2. Due to uncertainty, nobody is willing to book flights for future dates.
  3. Loss of jobs lead to lesser demand for this industry.

Thus demand is decreasing in travel and tourism industry

SUPPLY

While the country’s focus currently is rightly on fighting the health crisis and mitigating its immediate impacts, planning on how to re-open the economy is very important. The government should work to further improve the business climate for the private sector and continue undertaking serious reforms to overcome institutional weaknesses.

Reason for the shift of the supply curve

  1. The government is taking actions to contain the spread of the virus including the suspension of commercial international passenger flights. International travel restrictions are already curtailing tourism to the country.
  2. Lower tourist spending will affect not only hotels, restaurants, taxi enterprises, and tourist guides, but also food processing and agriculture. Lower remittances income will likely reduce household consumption of consumer goods and hit sectors producing intermediate goods.

So, supply is decreasing.

Rapid-onset demand- or supply-side economic shocks such as those caused by the COVID-19 pandemic will affect the economy badly.

Initial equilibrium was Eo and new equilibrium is E1.


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