Using appropriate diagrams, evaluate the effect of a global pandemic on a national economy as in...

Using appropriate diagrams, evaluate the effect of a global pandemic on a national economy as in many countries residents stay home, businesses close and economic activity slows down. Will the supply-side contraction inevitably lead to an increase in prices?

Expert Solution

due to pandemic of COVID-19,there was global lockdown

IMPACT OF LOCKDOWN DUE TO PANDEMIC-

Lockdown resulted in collapse of businesses,increased unemployment,shortage of supply and also these all activities led the economy into recession.people purchased additional units of essential commodity under panic situation which led to generate a situation of shortage of goods concerned with normal consumption.furthermore the supply process was stopped,therefore it made the market seller's market.

if we assume that demand remained constant in the short run,then the supply curve would shift leftward and therefore the prices would increases.

but after sometime,people would be unemployed due to shut down of production unit and therefore it would lead to overall decrease in AD in the economy after some time.
as we can see the demand for the labor was stopped therefore equilibrium point was shifted from full employment level to under-full employment level and there was lack of demand for commodity in the economy due to unemployment and lower level of income.

Rahul Sunny answered 2 years ago

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