COVID Economics #4: Medical Supplies

For this week’s update, we’re going to take a look at the market for medical supplies. Right now, prices are going haywire – costs have increased by over 1000%. When demand shifts way right, price goes way up. Furthermore, companies and hospitals are so desperate for masks that they are offering more and more for suppliers. Every state is in a free-for-all bidding war, and price gougers (buyers who buy in bulk and sell at extreme markups) aren’t helping the situation. Additionally, some vendors are requiring state governments to pay up-front, something they pretty much never do. Many big companies like General Motors and Ford have partnered up with Ventec to produce ventilators (delivered to hospitals about 2 days ago!), increasing supply and scaling up supply chains. Unfortunately, this is still not enough to correct the shortage. If you have time, consider donating supplies and/or making masks for your local hospital!

Now for last week’s answers:

1. MC = 6, AVC = 5.5

Weekly Challenges:

  1. Everyone’s favorite: factor markets 😅
    A firm sells its output in a perfectly competitive market and hires two inputs, capital and labor, in perfectly competitive factor markets. The product price is $15 per unit, the wage is $75 per day, and the marginal product of capital is 3. If the firm is choosing the least-cost combination of labor and capital, what is the firm’s marginal product of labor and its price of capital?
  2. Open-ended: What is the trade-off between shutting down the economy and flattening the curve? Arguably, high unemployment is causing more death. On the other hand, the decreasing amount of pollution from lockdown is potentially saving more lives. Does it all come down to numbers? In your opinion, how do we strike a balance between restarting the economy and keeping coronavirus contained?

Reminder: Equilibrium deadline is 4/24, and Daryn Dodson’s talk is 4/28 at 3:30pm (EC opportunities for both).

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