COVID-19 Meets Supply and Demand: One Application of Basic Economics
Over the past few months, the world has been taken by storm due to COVID-19, one virus in the family of coronaviruses. COVID-19 is a new virus that has now been identified in humans, but other members of the coronavirus family, including SARS and MERS, have also been known to spread from animals to humans in the past.
With over 94,000 deaths worldwide linked to COVID-19 thus far, the global economy has surely taken its toll. What happened?
Country quarantines result in a drastic shift to the labour market, companies continue to seek wage subsidies from the government to reduce the impacts of extensive, non-covered costs, and store shelves are making room for more and more essential goods. The implications of the virus go on, and it’s difficult to write about everything, accurately, in one article. For that reason, let’s apply the economic concepts of supply and demand to basic needed goods.
Basics: Supply and Demand for Goods
The supply and demand curve (as seen in Figure 1) is perhaps one of the most important concepts within economics. In any market, the demand curve represents the quantity of goods demanded (note: this article will refer to supply and demand using direct demand, not derived demand), and the supply curve represents the quantity of the supplied goods. Where these two curves meet is known as the equilibrium point, and is ideal for businesses and consumers. When quantity demanded exceeds quantity supplied, this results in a shortage of the good (not enough for everyone who wants it). Yet, when quantity supplied exceeds quantity demanded, this results in a surplus (too much of the good, not enough people want to buy it). In order to regulate the levels of supply and demand, in a free market, businesses make changes to and put pressure on prices.
There are many other factors that influence both supply and demand, and of course a variety of other variables to consider. However, with this basic knowledge, what can we do to better understand what’s happening with COVID-19?
Examining only one angle, let’s take a look at what’s happening with necessity goods. Gloves, ventilators, and masks are becoming more and more scarce, with individuals demanding more of the good that’s actually available. Therefore, there’s a shortage of these goods — and businesses and governments are currently researching new ways to combat it! Alongside raising prices, governments are also trying to increase the supply of the goods, leveraging surrounding resources.
Now with a fundamental understanding of supply and demand, think: what are the other economic implications of COVID-19?
