ECN1001: Demand for hand sanitizer is surging around the globe as the new coronavirus spreads, prompting retailers to ration supplies: Principles of Economics Assignment, NUI, Ireland

Microeconomics:

Demand for hand sanitizer is surging around the globe as the new coronavirus spreads, prompting retailers to ration supplies and online vendors to hike prices.

• What is meant by the term “demand for hand sanitizers’’? Do you expect a positive or negative relationship between the price of hand sanitizer and the quantity demanded? Give reasons for your answer.
• Using a demand and supply diagram explain what is the likely factor to have caused the increase in price and the resultant effect on equilibrium quantity.
• Discuss the concept of “price elasticity of demand’’. How do you expect the price elasticity of demand for hand sanitizer has change during the first few months of the coronavirus outbreak?
• Suppose that the price elasticity of demand is -0.1 and it is estimated that the price of hand sanitizers will increase by 50% during the pandemic. Explain the likely impact of this increase in the price of hand sanitizers on the quantity demanded.
• Evaluate the impact of the rolling out of the Covid-19 vaccine on demand and the price elasticity of demand for hand sanitizer.
• Assume that firms producing hand sanitizers are in business in order to maximize the level of profits and that they are price takers. Discuss and show graphically, how each firm would decide how many hand sanitizers to produce.

Macroeconomics

Governments across the globe ramped up spending in order to mitigate the negative economic impact of the pandemic. These packages consisted of discretionary fiscal stimulus measures, state guarantees for loans to firms, and other liquidity support measures. An important component of the discretionary measures relates to support for firms, in particular, to preserve employment.

• What was the multiplier effect of an increase in government expenditure? Explain, and hence discuss, how an economy adjusted to a positive demand shock. Support your answer with the Circular Flow of Income diagram and examples.

Inflation has surged worldwide as countries have come out of their COVID-19 lockdowns. In October, the US consumer prices rose by an average of 6.2% from a year earlier, exceeding all projections and reflecting higher prices for energy, shelter, food, and vehicles. Many economists expect inflation to get worse before it gets better.

• What are the demand-side and cost-side causes of the current rising inflation? Support your answer with diagrams and examples.

The sharpest consumer-price increases in years have evoked different responses from central banks. Many have raised interest rates, but two that haven’t are the most prominent in the global economy: the Federal Reserve and the European Central Bank. These differences in responses reflect differing opinions as to whether current price increases will feed further inflation cycles or simply peter out.

• Explain the impact an increase in interest rates has on the economy.

The COVID-19 pandemic has put unprecedented burdens on countries’ economies and government finances. The depth of the COVID-19 shock and the size of the fiscal response has led to a drastic deterioration in the fiscal positions of countries. All countries will need to continue supporting their economies to recover from the severe shock while safeguarding medium-term fiscal sustainability.