Question 1
Say’s Law does not apply in a new vaccine to treat the virus. According to Say’s law, the ability to produce a product depends on its ability to generate income. This goes against the need to develop a Covid-19 vaccine. The need to develop the vaccine is based on the need to sustain the survival of human life as opposed to generating income.
No. The law of demand does not apply to toilet paper because of the change in circumstances. Therefore, an increase in price will not warrant any decline in the demand for toilet paper.
Yes, the law of supply still applies in milk and eggs. This is because the price is one of the main driving forces for suppliers.
Yes. The invisible hand is in the application during the rationing of food and cleaning supplies. When the grocery stores limit the supply of goods, the demand will increase, and as a result, the prices of the groceries will increase as well.
Question 2
Adam Smith would advise the government to resist intervening in economic operations and let the market dictate the prices of food and sanitizing products.
If the government ignores Adam Smith’s advice, there is a likelihood that the production of sanitizing products and food will decrease and create a nationwide shortage of products.
One of the positive attributes of Adam Smith’s view is that it creates autonomy for businesses to operate and succeed. A major disadvantage of Adam Smith’s view is that it creates a social divide due to the rise of inequalities in wealth and income.
One of the positives of the World War II model is that it allowed the poor to acquire goods and products which they could have otherwise not afforded. One of the negatives is that it led to the collapse of many businesses as the price controls were not sustainable.
Question 5
In the current economic situation, the government should move in to enact controls in the economy. The company is slowly sinking into a recession with a decline in employment. Therefore, for the government to keep the economy running, it should consider placing price controls to prevent producers and suppliers from running out of business, the government should consider lowering the taxes remitted towards the government.
The government’s intervention will help to also uphold the right of human beings, such as access to essential commodities.
One of the positive externalities of the intervention is that it will enable the citizens to benefit from the usual supplies of food at the regular prices despite the severe economic implications of the Covid-19 virus. A negative externality of the intervention of the government is that citizens will not benefit from normal government services, which decline significantly due to the reduction in government expenditure caused by a decline in taxes.
