ECONOMIC ASSESSMENT

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Contents
Introduction.................................................................................................................................................2
Demand and Supply Change........................................................................................................................2
Externalities.................................................................................................................................................4
Market Failure.............................................................................................................................................6
Conclusion...................................................................................................................................................7
References...................................................................................................................................................9

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Introduction
Examining the effects of COVID-19 on supermarkets and consumers, this report delves into the
economic realm. Grounded on recent publications and informed by microeconomic analysis
methods acquired during our studies, we conduct our analysis.

Across various economies, the ripple effect of COVID-19 hits supermarkets and related
industries particularly hard. A virulent coronavirus with symptoms ranging from fever to
respiratory distress and death, COVID-19 poses immense health threats. Facing a global
challenge, economic shifts occur as a result of this issue.

The significance of this issue lies in its impact on the economy and diverse stakeholders, making
it an ideal subject for investigation. Arguments abound regarding the universal impact of
COVID-19 on humankind. When investigating changes in demand and supply, illuminating
emergent positive or negative externalities, identifying market failure cases, and comprehending
how these factors influence economic actor behaviour and market dynamics, we obtain essential
information for future nation growth and crisis avoidance.

Demand and Supply change

According to Lim et al. (2021), the COVID-19 crisis has brought about considerable changes in
consumer behaviour regarding select products. A sudden upsurge in demand has led to price
surges and intensive pressure on market suppleness. Offered as a striking illustration, the
escalated interest in toilet paper (Leung et al., 2021) highlights the phenomenon. Data from the
past reveals a consistent trend during economic downturns: people stockpiling toilet paper. Such
worries stem from limitations on imports and factory shutdowns' potential consequences for the
supply chain. Thus, the surge in purchasing activity is motivated by exceptionally high levels of
uncertainty and illogical decision-making on the part of economic actors.

Suppliers are left grappling with the consequences when agents heedlessly hoard toilet paper,
causing a disproportionate demand on the economy's resources. When a commodity essential to
society becomes scarce, the associated opportunity cost rises, and entrepreneurs make the most
of these circumstances by scalping (Rosenstone, 1982). As a result, prices for toilet tissue rise,
thereby reducing consumer surplus, since supply remains unchanged while valuations rise.

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 Graph 1: Demand Curve
The graph shown above demonstrates how consumer purchases beyond requirements lead to a
supply-side shock, adhering to Adam Smith's theory of supply and demand established in 1776.
While the supply curve remains steady, a pronounced rightward shift of the demand curve
unfolds. Consequently, the usual price falls short of satisfying the increased demand, resulting in
an unsustainable supply-demand gap.

Consumers' willingness to pay a higher price creates a chance for agents to leverage the unusual
demand for this product. Awareness of prevailing societal misinformation creates new
opportunities for agents.

Graph 2: Supply Curve

Directly visible on the graph, the supply curve shows a noticeable movement to the right. As a
result of elevated concern about scarcity, toilet paper consumption substantially increases,

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causing this transformation. Containing supply and stabilizing demand, the market achieves a
new equilibrium once the notion of a dearth of toilet paper fades.

Externalities
It is obvious from the image that the supply curve has moved to the right. Driven primarily by
scarcity concerns, consumer demand for toilet paper experiences a dramatic surge. As the supply
expands and agents acknowledge the absence of an actual toilet paper shortage, demand finds
balance, reaching a new equilibrium.

The involvement of misguided actors and illogical decision-making translates into escalated
externalities within the economic sphere, according to Krichevskiy and Qirjo (2017).
Emphasizing a previous point, the persistent buying of basic goods results in shortages that have
a detrimental impact on those who are already struggling. In rural areas, the effects are most
notable where individuals and families must buy groceries and essentials in greater amounts due
to their distance from metropolitan centres.

On the other hand, positive externalities are present as well. The surge in demand has produced
unfulfilled market needs, which can be satisfied by selling said essential medical products
(Bhaskar et al., 2020). This development has multifaceted effects: The benefits of this transition
extend beyond individual households: sellers witness elevated income, customers find easier
access to critical necessities, and the general well-being of the community improves as more
individuals safeguard their health and help prevent disease transmission.

Graph 3: Demand Curve

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In recent times, a marked rise in the popularity of protective staples like surgical masks and hand
sanitizers has transpired due to the COVID-19 pandemic (Al-Mahish et al., 2021). From the
graph, it's evident that rising consumer desire prompts a shift towards the right of the demand
curve. Therefore, both public and private expenses increase proportionally to the growing
demand for these critical goods. While the cost acceleration for these commodities might appear
minute, the comprehensive private and public value they provide is substantial.

When the rewards are both individual and societal, people demonstrate a significantly increased
preference to put their money towards indulgences. A vital realization is driving this change in
purchasing habits: products' positive external impact on disease transmission reduction.

The measures enacted by individuals in response to the COVID-19 pandemic have yielded an
unexpected positive externality: Pollution levels (Coccia, 2020) see a notable decline The
fortunate turn of events can be attributed to the broad factory shutdowns and restrictive travel
measures, all directed at checking the virus's proliferation. With a decrease in industrial and
travel activities, consumption of non-renewable energy sources like coal and gas decreased
(Hartono et al., 2021). Therefore, the detrimental environmental effects related to these energy
sources significantly decreased.

Collateral advantages, specific to health and disease prevention, emerge in tandem with this
environmental upgrade. Reduced air pollution due to COVID-19 mitigates respiratory threats,
strengthening public well-being. The unexpected environmental advantages highlighted by the
pandemic illustrate the close connection between human activity and wider ecological effects.

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 Graph 4: Demand and Supply Curve
There is a striking difference in pollution levels when the demand curve is evaluated based on oil
consumption. Attributable to reduced transportation activities, caused by travel limitations and
governments' responses, this transition has taken place. Leftward shifts in both public and private
expenses occur with oil. Not only has the decreased demand for oil caused oil prices to drop but
also pollution levels to decrease. This brings about an improved quality of life for all, as it
promises cleaner air and reduced environmental harm, resulting in a positive externality.

Market Failure
Highlighting economic fragilities, the COVID-19 pandemic brings attention to unstable market
structures. Virgin Airlines, as an illustration, has been exposed to hurdling under the weight of
insufficient funds and precariously perched on the edge of financial instability (Zhang and
Zhang, 2021). Pervasive instability characterizes a more extensive dilemma: the flawed nature of
existing business structures and operations. It has come to light that even great multinational
companies, widely believed to possess the necessary resources to weather crises, have failed to
live up to expectations. This predicament can be attributed to various factors, but they all point to
a common undeniable fact: Inefficient resource allocation within these industries and
corporations. The pandemic has underscored the value of economic frameworks that are better
equipped to withstand crises.

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 Graph 5: Marginal Cost and Marginal Revenue Curve
Many industries fail to meet allocative efficiency, prioritizing profit and revenue over-
optimization (Yassine and Soumia, 2016). In the graph, we see how output decreases and prices
rise at intersections Qm and Qe. Flight production's hidden expense speaks to wider possibilities
of accessibility or higher output that could positively affect society. Amid economic crises like
pandemics, a strategic change of priority toward maximizing profits can bolster companies'
endurance and capacity for recovery.

Even with these measures in place, the continuing pandemic remains a formidable obstacle for
numerous organizations. Government responses have included measured initiatives tailored to
address the issue. As a means of supporting businesses during COVID-19 work restrictions,
Australia has introduced the JobKeeper grant (Watson and Buckingham, 2023). Seeking to offer
temporary financial security, this initiative enables individuals to maintain their livelihoods and
provide for their loved ones. As a result, this policy enables the continuation of national trade and
economic activities despite challenges.

Conclusion
In summary, the COVID-19 pandemic has provoked a sweeping array of economic changes as it
spread across the globe. The crisis has brought about a significant drop in industry demands,
thereby putting a strain on factories to stay afloat. Amidst difficulties, the possibility of
prosperity persists, courtesy of economic agents' resourcefulness and tenacity.

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The collective repercussions of the decisions taken during this crisis highlight the extensive
reach of individual choices within society. Logical resource distribution is challenged by the
erratic nature of pandemics. Governments and markets join forces in times of need for
stabilization and equilibrium reestablishment.

The lessons learned from this pandemic ought to motivate businesses to plan extensively for
impending unpredictability. Inefficient resource allocation on a global scale has exposed
weaknesses in shielding economies and communities. Agents in the economic sphere actively
tackle inefficiencies, leveraging efficient resource allocation to overcome obstacles. To face the
unknowns of the future, we need to adapt, be resilient, and manage resources wisely.

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References
Al-Mahish, M, AlDossari, N & Almarri, A 2021, “Consumer’s demand for Disinfectants and
Protective Gear from COVID-19 infection in Al-Hofuf, Saudi,” Journal of Infection in
Developing Countries, 15(11):1618–1624, https://doi.org/10.3855/jidc.13332.

Bhaskar, S., Tan, J., Bogers, M.L., Minssen, T., Badaruddin, H., Israeli-Korn, S. and Chesbrough,
H., 2020. At the epicenter of COVID-19–the tragic failure of the global supply chain for
medical supplies. Frontiers in public health, p.821.

Coccia, M., 2020. How (un) sustainable environments are related to the diffusion of COVID-19:
the relation between coronavirus disease 2019, air pollution, wind resource and
energy. Sustainability, 12(22), p.9709.

Hartono, D., Yusuf, A.A., Hastuti, S.H., Saputri, N.K. and Syaifudin, N., 2021. Effect of COVID-
19 on energy consumption and carbon dioxide emissions in Indonesia. Sustainable
production and consumption, 28, pp.391-404.

Krichevskiy, D. and Qirjo, D., 2017. Rational agents and irrational bubbles. In Handbook of
Investors' Behavior during Financial Crises (pp. 113-127). Academic Press.

Leung, J., Chung, J.Y.C., Tisdale, C., Chiu, V., Lim, C.C. and Chan, G., 2021. Anxiety and panic
buying behaviour during COVID-19 pandemic—a qualitative analysis of toilet paper
hoarding contents on Twitter. International journal of environmental research and public
health, 18(3), p.1127.

Lim, G., Nguyen, V., Robinson, T., Tsiaplias, S. and Wang, J., 2021. The Australian economy in
2020–21: The COVID‐19 pandemic and prospects for economic recovery. Australian
Economic Review, 54(1), pp.5-18.

Rosenstone, S.J., 1982. Economic adversity and voter turnout. American Journal of Political
Science, pp.25-46.

Watson, T. and Buckingham, P., 2023. Australian government COVID‐19 business

supports. Australian Economic Review, 56(1), pp.124-140.

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Yassine, B. and Soumia, A.H., 2016. Assessing cost and profit efficiency by a joint application of
parametric and non parametric approaches: Evidence from the Algerian Banking
system. EconWorld 2016@ ImperialCollage Proceedings, pp.1-29.

Zhang, Y. and Zhang, A., 2021. COVID-19 and bailout policy: The case of Virgin
Australia. Transport policy, 114, 174–181. https://doi.org/10.1016/j.tranpol.2021.09.015

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