Your Money or Your Life: Microeconomic Lessons From the Pandemic

Introduction

Much of the media coverage, as well as most scholarly research about COVID-19, focuses on the macroeconomic effects, especially unemployment, recession, and economic recovery. This is not surprising, given the unprecedented and global impact of the virus. The author believes that these are not the most interesting economic topics related to the pandemic. There are numerous applications of very basic microeconomic concepts and their extension to other aspects of economic life, as well as the opportunity for better understanding of how the market works and its effects on the economy and society.

In this chapter, the author analyzes three microeconomic applications of the pandemic. Part I is a discussion of the allocation of a scarce resource, the definition of economics. The pandemic provides examples of how the market can do this when it should not, which expands and changes the meaning of scarcity. Part II is an analysis of tradeoffs. In particular, there are tradeoffs between shutting (or re-opening) the economy and loss of human life; a rational decision maker would compare the costs and the benefits. Part III is a discussion of how the pandemic has affected certain sectors of the economy more profoundly than others and intensified existing income inequality.