ECO101 Thinking like an Economist Question 3 Summary - Viral Bipin Trivedi

Thinking like an Economist Question 3 Summary - Viral Bipin Trivedi (Student ID # 2110 1719)

Introduction - COVID -19 and its impact:

Lockdowns due to the COVID-19 pandemic started in 2020. These impacted multiple businesses across the globe. Businesses had to follow various social distancing rules, due to which a few businesses had to stop functioning like restaurants and retail outlets. Most businesses suffered, but for a few of them, this was a great business opportunity.

Businesses that could take advantage of the crisis during COVID-19:

Microchip industry, personal protective equipment kit manufacturers, pharmaceutical industry including vaccine producers, online shopping portals like Ubox, Amazon, hand sanitiser manufacturers, online streaming platforms like Netflix.

Detailed analysis of businesses that prospered during COVID-19:

Example 1: Online Shopping Portal Amazon

According to a study on Amazon by Weise, Karen (2021), the proportion of respondents that shopped online at least once per week increased nearly five times from 11.6% in fall 2019 to 51.2% in spring 2020. The percentage of revenue from merchants listing items on its website and using its warehouses was up 64 percent, to $23.7 billion.

Amazons prosperity and a boom in the online shopping business can be attributed to stay-at-home orders, lockdown and related restrictions and general reluctance to shop in person due to pandemic. Amazon also benefitted from marginal analysis as the number of items that Amazon sold increased by 44%, but the cost to fulfill those orders was only up by 31%.

Example 2: COVID -19 vaccine manufacturer - Pfizer

Pfizers revenue was $81.3 billion in 2021(double, compared to 2020). Its mRNA vaccine had a market share of 70% in the U.S. and European markets. Its antiviral Paxlovid was the preferred pill to treat early symptoms of covid.

As there was almost a demand of billions of doses and the production capacity was very limited the organisations which were the first ones to get the approvals from regulatory authorities such as Pfizer, were able to pocket huge revenues and be successful. With borders closed, lockdown imposed and worlds economy reeling, Governments and people all around the world wanted to move back to their normal lives. The only way to get this done was a vaccine that would protect people from the virus and improve their immune system. There was one big hurdle that would prevent this and it was the factor of scarcity. Pfizer took advantage of the unanticipated demand and scarcity to ramp up its production facility after its vaccine was approved by medical authorities. Opportunity cost to Pfizer was reduced investment in research and development as Pfizer shelled out more than $25 million on in-house lobbying and payments to 19 lobbying firms, pushing for legislation to protect its products and promote more robust U.S. vaccination programs. This move helped them gain additional revenue.

Conclusion:

Global factors influencing supply and demand are dynamic. Markets and businesses have to respond to these changing circumstances. If we think like an economist and are aware of concepts like scarcity, marginal cost analysis, opportunity cost, etc., we can be better placed in making good business decisions and taking advantage of these changing circumstances, and can make our organisation prosper even in challenging conditions.

References:

ABC news. 2021. "WA hospitality businesses set to lose millions in lost weekend trade and stock because of COVID lockdown." ABC news. https://www.abc.net.au/news/2021-04-24/covid-lockdown-wa-cafes-restaurants-to-lose-millions/100093064.

Allen, Arthur. 2022. How Pfizer Won the Pandemic, Reaping Outsize Profit and Influence. Kaiser Health News. https://khn.org/news/article/pfizer-pandemic-vaccine-market-paxlovid-outsize-profit-influence/.

BBC News. 2020. "Coronavirus: The world in lockdown in maps and charts." BBC news. https://www.bbc.com/news/world-52103747.

BBC news. 2020. "Netflix gets 16 million new sign-ups thanks to lockdown". BBC news. https://www.bbc.com/news/business-52376022.

Berardi et al. 2020. Hand sanitisers amid CoViD-19: A critical review of alcohol-based products on the market and formulation approaches to respond to increasing demand. International Journal of Pharmaceutics : 584. https://doi.org/10.1016/j.ijpharm.2020.119431

CBS News. 2022. Chip manufacturers struggling to meet demand amid global shortage: "It is extremely complex. CBS News. https://www.cbsnews.com/news/chip-shortage-manufacturers-struggle-meet-demand/.

Chang, Hung-hao, Chad D. Meyerhoefer.2021. "COVID-19 and the Demand for Online Food Shopping Services: Empirical Evidence from Taiwan." American Journal of Agricultural Economics.Vol.103 (2), p.448-465. https://doi.org/10.1111/ajae.12170.

Financial Express. 2020. MSMEs helped India to have surplus PPE kits, sanitizers, says Nitin Gadkari; making this much daily. Financial Express. https://www.financialexpress.com/industry/sme/msme-exim-msmes-helped-india-to-have-surplus-ppe-kits-sanitizers-says-nitin-gadkari-making-this-much-daily/1994874/.

Medi bank. 2021. "The majority of Western Australian stores to temporarily close due to new COVID-19 restrictions." Medi bank. https://www.medibank.com.au/livebetter/newsroom/post/the-majority-of-western-australian-stores-to-temporarily-close-due-to-new.

Sagonowsky, Eric, Angus Liu, Fraiser Kansteiner, Zoey Becker, Kevin Dunleavy. 2022. The top 10 vaccine companies worldwide. Fierce Pharma. https://www.fiercepharma.com/pharma/top-10-vaccine-companies-worldwide#:~:text=Back in 2017, vaccine stalwarts,and a global manufacturing expansion.

UNCTAD (United Nations Conference on Trade and Development). 2021. Global e-commerce jumps to $26.7 trillion, COVID-19 boosts online sales. United Nations. https://unctad.org/news/global-e-commerce-jumps-267-trillion-covid-19-boosts-online-sales.

Weise, Karen. 2021. Amazons profit soars 220 percent as pandemic drives shopping online. The New York Times. https://www.nytimes.com/2021/04/29/technology/amazons-profits-triple.html.