Question

Events we have encountered during the COVID-19 quarantine have created excellent situations to discuss from the framework of distribution systems.  The forces of supply and demand, when left unaltered by the government, will find equilibrium prices to satisfy buyers and sellers. There are times, however, when the outcome of the market forces is not liked by society or government.

A case in point would be the market for n95 face masks.  

Defend the best mechanism to use to distribute scarce goods, like the n95 masks, during a time like we have experienced with the quarantine.

Answer 1

Masks, hand sanitizers and vaccinations are different from most goods because they may benefit more than just the person using them.

Wearing a mask will not only protect the person wearing it but also the nearby persons as it will avoid the droplets of cough or sneeze to affect the nearby people , thus preventing the spread of Covid 19. This relates to the concept of positive externality.

But rationing is not the proper solution. Suppose there are two people who require mask. One is working in a corporate and has high salary and working from home. The other is a factory worker who has to go out and work. The one working from home can afford the mask and least requires it as he does not have to interact socially. Whereas factory worker has less money and had to go out for work and interact with large number of people, thus requiring mask urgently.

When the price of masks shoots up, the first man can easily afford to order a supply for himself via Amazon, but the other is unable to do so.Allowing the market to ration a scarce good through higher prices means the wrong people are likely to get it. Moreover, some people may end up hoarding masks, whether for personal use or to sell at even higher prices.

Some potential solutions

• South Korea limits the price to US$1.20 a mask, far below the previous market price of $2.00. And it imposes a weekly ration of two face masks per person.
• Taiwan has dealt with situation successfully.Taiwan’s government rationed masks to prevent panic buying and prioritize allocations to health personnel. At the same time, production was ramped up so that individuals are allowed 10 masks every two weeks.
• US government can buy large share of masks and distribute at low price to the families affected with high infection rates. This will help in price control.
• To avoid direct contact the federal government could set the price and require that no more than two masks be sold per person.
• N95 masks should only be used for medical staff or people with serious infection whereas common people can use ordinary masks . This will help in preventing shortage of N95 masks.

To conclude the government need not to adopt price control on all medical supplies but price control on products like masks, hand sanitizers or vaccines is essential to prevent spread of Covid 19 until these are available in abundance.