Question

1. Write something about Covid-19 as it pertains to externalities and market failures.
   1. What is the market failure?
   2. What solutions can be enacted by public policy or already are being enacted to try and “fix” this externality.

Answer 1

i. Covid 19 has caused panic and uncertainty among both consumers and investors. The initiatives taken to control the pandemic create externalities in the form of restrained consumption, investment, and availability of jobs. These hapoen because people avoid many transactions so as to protect themselves from the disease, which has no cure as yet. Further, the threat of the disease has been putting pressure on further enabling medical facilities to meet the increased demand for them. The pandemic has put many people out of work and destituted, while over burdening health professionals. This is the market failure caused by covid 19.

ii. In order to fix this externality, governments are encouraging people to practice social distancing and other protocols to avoid the spread of the disease. Governments are also trying their best to keep the essential production and services running, like agriculture, manufacturing, telecom etc. so that people's daily lives are not disrupted too much. It is also being tried to help those out of work to sustain themselves or go back to their homes. However, the circumstances are such that the market failure cannot be avoided entirely and there has to be a trade off between the spread of the diasese and economic revival.