Question

During the coronavirus pandemic of 2020, authorities advise against going out and par- ticipate into social gatherings. Grocery shopping is still allowed (recommended for essential needs), although not everybody is tested for the virus, and some can actually have it and display no symp- toms. Explain why grocery shopping involves externalities under those circumstances. What kind of externality is it? Is there too much or too little shopping compared to the socially efficient amount? Propose a way to restore the socially effcient amount of shopping.

Answer 1

The externalities are side effects of economic transactions that are not internalized by the free market forces.

The covid-19 Pandemic is spreading through social contacting. such cost of spreading a pandemic is not included in the cost of running the grocery malls or shops.

Thus, this is an example of negative externalities. The strong social distancing rules and norms must be pushed through to restore the socially efficient amount of shopping.

The number of visits must be reduced to reach the socially efficient level. The owner of the mall must impose such restrictions to contain the spread of the pandemic.