Question

Consider the Covid 19 virus and think about it from the perspective of the course. Would you expect decentralized private behaviour in the presence of a virus to lead to a Pareto efficient outcome? If your answer is yes, fully explain. If your answer is no, fully explain and provide one example of a corrective government policy and explain.

Answer 1

The Covid-19 pandemic is global harm to all the economies, all over the world. It is a situation where the productive structure of all the economies are destroyed and the recovery cost is very high. All type of measures, whether it is a monetary measure or the fiscal measures are unable to recover the economies in a way that it is much quicker from the last few months. As per the economist’s analysis, it will take at least 3 to 5 years to fully cope up from this situation. In the second case, there is a decentralization private behaviour means now the government is going to divide the work and to distribute all the activities in the private sector so that they can work together in the format of public and private partnership.

As per the Pareto efficient outcome, the Pareto principle suggests that the better of situation can only be possible for one side when there is a word for the situation for another site. The best example for this is the government expenditure deduction when there is inflation, but when there is a deep depression in the economy the government increases the expenditure to revive the economic structure.