MAE101 Implications of Corona Virus on Global Trade Assignment Sample

Economic Principles - Part 1

1 a. domestic market for face masks before and after the pandemic started

1 b. Reduction in the supplies due to unavailability of raw material-

1 c. demand and supply equilibrium after manufacturing by new firms-

1 d.

1. The demand of the face masks in the market was set at an equilibrium at point P1. The supply curve is the same as no new entrants of manufacturing entered the market and due to the pandemic the increased demand of face masks has made a new demand curve.
2. The increased demand of the face masks and the shortage compared that demand has increased the price of the masks to a higher level at point P2 where prices have been raised and equilibrium price is not same as P1.
3. The demand and supply equilibrium was set at P1 before the pandemic, as soon as the pandemic started the demand for face masks increased which created a new demand curve shifted to the right of the initial one, and due to shortage of the raw material, the supply was shorted and a new equilibrium was set at point P2. After the new manufacturer entered the market and the supply of masks increased the new equilibrium was set at point P3.

 The overall impact of the masks market after the pandemic is that a new equilibrium price and quantity has been set in the market even after compensating the shortage of the masks. This indicates that a change in the price and quantity can change the overall impact in the supply and demand equilibrium in the span of time.

1 e. The initial demand and supply curve equilibrium has been long set and the suppliers were supplying the adequate quantity, but as soon as the pandemic hit the market, the sudden increase in demand was set and the shortage of masks mad a new demand and supply curve equilibrium with change in the price elasticity of demand. Even after the new manufactures compensated the supply to fully suffice to the demand of the market, a new demand and supply equilibrium was set as a result of the change in the price elasticity of demand. It was possible that the equilibrium would have maintained again on the initial equilibrium but the change due to the pandemic has moved the price upwards and further supply of the masks was not able to bring the equilibrium to the initial level.

Economic Principles - Part 2

3a.

Resource	Bread loafs	Jam jars
Ali	10	20
Barb	6	36

Opportunity cost is the potential benefit that an individual or a firm will lose as a result of choosing the other option or alternative, it is an important concept of economics which throws light on to choose the best alternative according to the quality and quantity of the resources which best meet an alternative production. Opportunity costs are very important to be noticed as one wants to earn optimum potential benefit from his resources. The option which best suits the resources capability should be chosen. Educated decisions are made according to the studies of opportunity costs, bottlenecks for example is a result of opportunity costs.

Ali’s opportunity cost of making one loaf of bread is 2 jars of jam. It depends on the final market price of bread loafs and jams as to which alternative does Ali choose.

3 b. Barb’s opportunity cost of making one loaf of bread is 6 jars of jam.

3 c. If they both split their time in making jars of jam and loaf of bread, the following will be the result-

Resource	Bread loafs	Jam jars
Ali	5	10
Barb	3	18

It can be seen by the table that this option too can be considered for making optimum profit through the market as Ali has now 5 bread loafs and 10 jars of jam whereas Barb has 3 bread loafs and 18 jars of jam.

3d. If Ali had only made bread and Barb only had made jam there will be 10 bread loafs and 36 jars of jam will be produced which equals to 46 of total units.

3e. If Ali only had made jam and Barb only bread, there will be 20 jars of jam and 6 loafs of bread which equals 26 units, which is a lesser productivity as compared to what is seen in when Ali would have produced bread and Barb produced jam jars.

3f. Speaking of comparative advantages, Ali will produce only breads loafs which are 10 units and Barb will produce jam jars which is 36 units. If Ali gives 9 bread loafs in exchange of 36 jars of jam. Ali will have now 1 bread loafs and 36 jars of jam and Barb will have 9 bread loafs and no jar of jam.

3 h. Yes, making their specialized product will result I optimum production with 10 bread loafs and 36 jars of jam. Comparative advantage is the ability of a person, firm or an economy to produce goods at a cheaper rate and comparatively advantageous position as compared to its competitors, in other words at a lower opportunity cost than its competitors. It gives a firm an ability to sell at lower price the same material. It suggests that countries involve in trade of goods and services produce and exchange such output which are advantageous for them to produce. 

Suppose Australia can produce 100 units of coal with 10 units of its resources and can produce 30 units of steel with same resources, then Australia should choose to produce 100 units of coal as long as all the coal is demanded in the international market.

Economic Principles - Part 3

A Report On- Should Australia Provide All The Masks And Medical Supplies To Own Subjects Stopping Exporting To International Market Defying From International Trade?

Introduction

After the corona pandemic, the exponential growth in the number of patients has increased the concern of medical equipments producing countries whether to keep all the medical supplies for its own citizens or to abide by the international treaties and laws and keep exporting these materials to other countries that are in severe need of these materials (OECD, 2020). One can say that adequate amount of such materials are produced or imported even before the pandemic but the level of the pandemic and unavailability of the cure or vaccine has made countries anxious and the demand for medical supplies has surged multiple times given the fact that medical infrastructure of no country is ready to treat such a large number of patients expected from the pandemic.

Banning the Exports Vs Helping Other Countries

Both the concerns are of importance as to safeguard the country first and also to expert the medical items to the countries in need for the sake of two factors, first, the international trade laws which are agreed upon by the member nations and secondly, on the humanitarian factor the medical supplies be exported to those countries in need as in the time of globalization no country can be avoided and trade relations have to be maintained with other nations. Australia has made a wonderful move in April in the start of the pandemic against illegal trade of medical equipments with heavy fines and jail term under the biosecurity act. Australia is one the leading manufacturer of face masks and medical supplies. However it put ban on the export of PPE kits and other essential medical equipments, however it has jointly signed a statement with New Zealand, Singapore, South Korea and Canada in G20 summit on refraining from export ban on such supplies (Berlinger, 2020).

Reactions of Other Countries

 (Boykoff et al) 2020 say that other economies such as European Union in March restricted the exports of critical medical supplies and personal protective equipments like face shields, surgical masks, gowns etc. India also banned ventilators and sanitizers from its exports in March. Switzerland also announced license export of such medical equipments in the anxiety of shortage of materials in the future looking at the exponential growth of corona virus pandemic. These are only a few examples of government ban on such trades after the corona virus started to expand outside china. While leadership of the countries these countries is supporting such trade bans, trade experts have argued that such ban and successive de-globalization will lead to inefficient distribution of essential goods and services (doctor, nurses and specialists) in these times, the prices will go up and the poorer nations will suffer the most. National economies have a tendency to hoard but this national hoarding could lead to overall production reductions, inefficient supply and increase in prices. During the food crisis of 2008-11, many countries began to hoard and this increased food prices by 13% on average (Edwards, 2020).

In the issue of the corona pandemic, it was found that 70% of the total global trade of ventilators (very essential in these times) is exported by just 7 countries and if one country impose ban on such export, the prices of ventilators will go up by 10 %. In this case, Italy has banned export of ventilators which were previously exported 90% of the total production. There is no manufacturer of ventilators in Middle East, Africa, south Asia and only one in Latin America (Boykoff et al, 2020).

Implications on International Trade

The pandemic is severely affecting the international trade resulting in a negative economic outlook and loss in the trust of market. The economy of the world is witnessing its sharpest downturn after the great depression. IMF has warned about the severe and unique consequences of the crisis, it said that it is worse than the global financial crisis which is evident by the fact that by March 28, 6.6 m Americans filed jobless claims in their country. If this crisis has to be overturned the, supply of essential medical goods and services is necessary which must be shared on a global basis irrespective of any free trade agreements done or banning exports altogether for the sake of own citizens. Three severe implications have been marked by (Laker, 2020)-

• Repurposing and resuming the older supply chain will be much harder than thought.
• Nationalism will rise, resulting into discouragement to globalization and this will lead to inefficient use of resources according to the theory of opportunity cost.
• Harsh consequences are expected on banning of exports which will lead to harsh conditions social and economic in the developing and underdeveloped countries.

Pandemic has affected the global supply chains including Australia’s. It had led PM Scott Morrison to think of economic sovereignty in terms of medical equipment. Australia has had food shortage in 2012 during the draught period and that period had alerted Australia for sovereign sufficiency (Berlinger, 2020). Now Australia is re shoring the supply chains and the critical equipments. Australia has tried to find out the middle option and in that effort pondered on robustness and resilience. Robustness refers to the ability of producing to that amount to suffice domestic and export needs and resilience is the amount of time needed to get back to normal in terms of production and demand. Australia has started to build robustness by building suppliers strength (Edwards, 2020).

Stand of China

Uren (2020) explains that Covid 19 has created a shortage in supplies of face masks which is due to the increased demand and has also caused demand pull inflation. International trade is essential in these medical supplies as there are enormous countries that do depend on other countries for such supplies. China has continued to export such medical equipments and other essential goods to countries even after when they demanded an enquiry against china including Australia. However China’s “face-mask diplomacy” of donating PPE kits and essentials was actually a strategic move when it imported bigger amount of masks in 2019 and exported fewer amount of masks in 2020 compared to the previous year, it is concluded that China exported 24 % lesser masks compared to previous year. Australia in April demanded an enquiry into the mishandling of the initial period of corona pandemic by China which was a very brave statement looking at the facts that China was exporting essential medical equipments and secondly being Australia’s biggest trade partner, it banned import of Barley after the statement. OECD (2020) says that about 70 countries have imposed ban on exports of medical supplies and 50 have banned exports of protective garments. It has shown that a considerable number of countries have put a ban on essential supplies which could lead to expansion of the virus, ultimately leading to longer duration of downturn in economies. The disruption have been already seen between the economies as allegations of uneven distribution of masks and hoardings of supply intended for other countries have been seen in countries in European union and USA. USA has been alleged of banning exports of essential supplies while importing them from other countries (Uren, 2020).

References for Implications of Corona Virus on Global Trade

Berlinger, J. (2020). Australia will impose huge fines for illegally exporting medical supplies amid corona virus pandemic. Retrieved from https://edition.cnn.com/2020/04/02/australia/australia-coronavirus-illegal-export-fines-dp-hnk-intl/index.html

Boykoff, P., Clare, S. & Donato, V. (2020). In the race to secure medical supplies, countries ban or restrict exports. Retrieved from https://edition.cnn.com/2020/03/27/business/medical-supplies-export-ban/index.html

Edwards, J. (2020). The facts about global trade in face masks, ventilators and test kits. Retrieved from https://www.lowyinstitute.org/the-interpreter/facts-about-global-trade-face-masks-ventilators-and-test-kits

Holmes, A. (2012). Australia’s economic relationships with china. Retrieved from https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook44p/China#:~:text=Australia%20is%20China's%20sixth%20largest,are%20thermal%20coal%20to%20China.

 Laker, B. (2020) 3 Severe Implications of corona virus On Global Trade. Retrieved from https://www.forbes.com/sites/benjaminlaker/2020/04/07/3-severe-implications-of-coronavirus-on-global-trade/#7173a2c13d11

OECD.org. (2020) The face mask global value chain in the covid-19 outbreak: Evidence and policy lessons. Retrieved from http://www.oecd.org/coronavirus/policy-responses/the-face-mask-global-value-chain-in-the-covid-19-outbreak-evidence-and-policy-lessons-a4df866d/

Theconversation.com (2020). Sure, let’s bring production onshore, but it might not ensure supplies. Retrieved from https://theconversation.com/sure-lets-bring-production-onshore-but-it-might-not-ensure-supplies-142270

Uren, D. (2020). How Covid-19 infected global trade. Retrieved from https://www.aspistrategist.org.au/how-covid-19-infected-global-trade/

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