Economics of Covid Vaccines

The development of Covid vaccines has many micro and macroeconomic applications. Students can use the vaccines as examples in their exam responses. Let me give a couple of examples of each.

For example, the costs of developing the vaccines can be divided into fixed and variable costs. The fixed costs being the research and development costs and the laboratory costs whilst the variable costs are the costs of the glass tubes and syringes needed to administer the vaccines. The high amount of fixed costs means and low marginal cost of producing an extra shot of the vaccine means that average costs are likely to fall the greater the output. Thus, economies of scale exist in production of the vaccine.

We can consider vaccines as a merit good with positive externalities in consumption. There are private benefits and costs of having the vaccine but there are also external benefits, thus, the social benefits exceed the private benefits.

In macroeconomics, there is the long term economic impact of Covid on productive capacity. Worsening mental health and lost education represent losses of human capital. The vaccines have reduced the negative impact and reduced the hysteresis effects of the pandemic.

The inequitable impact of the pandemic globally has meant that progress in cutting extreme poverty has halted. Developing economies will need financial support to administer the vaccines. This might take the form of debt relief.

The US Government has created a huge stimulus package to kick start the US economy. The package includes direct payments of 1400US$ to all individuals who earn less than 75000$ per year, an extension of jobless benefits due to the widespread unemployment created by the pandemic and funding to roll out the vaccination programme much more quickly. This will have multiplier effects and significantly impact on the US economy. Most economists think that it will lead to growth which will take the US economy back to its’ pre pandemic level within a year. Some are concerned about possible inflationary effects.

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