Question

Imagine that the economy is hit by a pandemic of Coronavirus, which affects the total factor productivity. What are the equilibrium effects of this? (Determine howC(consumption), N(employment),Y(output), and w(wages) change in a CE.)

Answer 1

The whole world is hit by the pandemic and many rules and regulations were imposed to control the impact of it. Which affects the economic growth of the world.

1. Many governments went for the lockdown which decreases the output in the economy and affects the supply.

2. The pandemic was totally unknown to people and highly contagious which injected fear among the people and to go out and work.

3. Due to the crisis government allocated fund to the health sector much more than any other sector which impacts the productivity of an economy.

4. At crisis governments have borrowed helps from many international organisations, the impact of which will be on economy.

5. Even when the firms were opened but operated only with 50% of employee, which impacted upon productivity.

For those reasons there is a supply and demand gap in the economy which affects the equilibrium in the economy as supply declined and but demand increased.

The effects of it-

1. As the supply declined and the availability will decline, and the consumption will decline.

2.    COVID-19 affects the economic growth productivity of firms declined due to many reason which results into unemployment.

3. When the no of labours will be declined, the production will decline and output will decrease.

4. Inflation, employment, price stability, all are the indications of healthy economy which increases the income of people, but all those factors are affected by the pandemic which means that there will be negative impact on the wages as well.