Economics: Impact of Covid-19 on Hygiene Industry and Inflation

This report investigates the economic impact of Covid-19, focusing on the hygiene industry and inflation. It covers the definition of demand and supply, movement and shift of demand function, effects on equilibrium price, market structure, and the difference between long and short run. It also discusses Airmalta's operations, fixed and variable costs, average total cost curve, and profit/loss. Additionally, it explores the definition of inflation, demand-pull and cost-push inflation, measurement methods, and the difference between GDP and GNP.

Economics

Table of Contents
INTRODUCTION...........................................................................................................................1
SCENARIO ONE............................................................................................................................1
Definition of demand and supply:................................................................................................1
Distinguishing between movement and shift of demand function by using example of hygiene
Products along with utilization of appropriate diagram:..............................................................2
Explanation of statement with an appropriate diagram:..............................................................4
Main effects of hygiene products on equilibrium price:..............................................................5
Identification and explanation of scenario by changes in demand and equilibrium price
because of Covid pandemic:........................................................................................................6
SCENARIO TWO...........................................................................................................................6
Difference between long and short run along with identification whether Airmalta runs in long
or short run:..................................................................................................................................6
Identification of fixed and variable costs that incurs in operations of Airmalta:.........................7
Explanation of average total cost curve of Airmalta in the long run:..........................................7
Explanation of market structure in which Airmalta operates in:.................................................7
Profit or loss of Airmalta in 2017 and 2018:...............................................................................8
SCENARIO THREE........................................................................................................................9
Defining inflation:........................................................................................................................9
Explanation of demand pull inflation and cost push inflation:..................................................10
Identification and explanation of two methods of measurement of inflation:...........................10
SCENARIO FOUR........................................................................................................................11
Difference between GDP and GNP...........................................................................................11
Measurement of GDP by making the use of Expenditure method............................................12
Measurement of economic growth rate and distinction between real and nominal economic
growth rate.................................................................................................................................13
Representation of the difference between Real and Nominal Economic Growth Rate............13
Change in Real Economic Growth Rate after the first quarter of the year 2020.......................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................16

INTRODUCTION
Economics refers to a large set that consists inter-related production, exchange activities
as well as consumption that determines allocation of scarce resources. In other words, all
activities that relates trading of goods and services as well as its production and consumption
encompasses in economics. Hence, it can be defined as a social science that investigates
interaction of people with value, that is, goods or services. Economics are can further divided
into two types, that is, macro economics and micro economics. Former states study of entire
economy as it focuses on decision making at large scale ,while, later states incorporates study
regarding behaviour of people or business in context to making of economic decisions (Babe,
2018). Basis of this report is investigation of economic impact after Covid pandemic. It covers
impact of Covid on industry of hygiene. Further, cost of production as well as market structure of
Air Malta entity is described. Inflation in Malta is discussed in detailed manner and lastly, effect
of Covid outbreak on gross domestic product of country is evaluated.
SCENARIO ONE
Definition of demand and supply:
Demand: Demand can be defined as a economic principle that refers to willingness of
consumers for purchasing a particular product at a particular period of time at a particular price.
While holder other factors as constant, an increment in level of price of goods or services will
lead to decrement in quantity of products that is demanded, while on the contrary, decrease in
level of price associated with products will result in improvement in quantity of products that is
demanded. In terms of micro economics, demand refers to market demand associated with
particular product, and in terms of macro economics, it is aggregate demand of all goods and
services in an economy (Barbier, and et.al., 2019).
Supply: It is a fundamental concept of economics that pinpoints total amount of goods or
services which is available for consumers. It can be related to amount that is available at specific
rate at a specific time. It is closely related with the demand of products (Earle, 2018). All other
things being constant, it price of product increases its supply will rise and on the contrary if
price associated with product decreases, its supply that is provided by producers will also
decline.
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Distinguishing between movement and shift of demand function by using example of hygiene
Products along with utilization of appropriate diagram:
Movement of demand function: Movement in demand curve occurs when change in
level of price leads to change in quantity demanded. Hence, movement in the curve of demand
occurs at the time when price of the product changes. In relevance to hygiene products such as,
masks, sanitizers, hand wash etc. movement in demand curve happens when change in prices of
hygiene results in change in quantity that is demanded (Edwards, 2017). Movement in demand
curve leads in expansion or contraction, these terms are further explained below in detail in
relation to hygiene products:
 Contraction: It happens when increment in price level of products leads to movement in
the curve of demand. It leads to upward movement in the demand curve (Movement in
demand curve, 2020). After the outbreak of Covid 19, awareness regarding self hygiene
spread at vast level, because of this reason demand for hygiene products also improved
drastically. Because of sudden increment in demand of hygiene products its price also
increased as demand was high and supply was less. This served as a reason for movement
in demand curve of hygiene products.
 Expansion: It occurs when level of price of goods or services declines as in this situation
quantity demanded increases, while other factors are same. It results in downward
movement at same curve of demand. Reduction in prices of hygiene products leads to
enhancement in its quantity demanded (Evans and Schmalensee, 2016).
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Illustration 1: Movement in demand curve. 2020
( Source: Movement in demand curve. 2020 )
Shift of demand function: Shift in the curve of demand occurs when price of product
remains constant but its quantity demanded is increased or decreased because of alteration in any
other determinant (Shift in demand curve, 2020). Such determinants can be income level of
consumers, change in trends, future expectations in context to supply or price, price of other
related products, number of buyers, etc. There are two types of shift in demand curve which are
further explained below:
 Rightward shift: When there is increase in quantity of products demanded by consumers
instead of no alteration in its price, than demand curve of that products shift to the right
hand side. As in case of hygiene products, due to increases health awareness of people
and threat of corona virus demand for hygiene products is increasing day by day. This
resulted in rightward shift of demand curve of such products, as irrespective of price rate,
level of demand is constantly high for products that are hygiene related (Eicher, 2019).
 Leftward shift: Demand curve shifts in leftward direction when demand of product or
services decreases despite of no change in its price level. Demand for hygiene products
have reduced in recent time in comparison to its demand at the time when threat of
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corona virus just arrived. Hence, if quantity of demand will decrease and price level is
same than automatically its demand curve shifts to leftward direction.
Illustration 2: Shift in demand curve. 2020.
(Source: Shift in demand curve. 2020)
Explanation of statement with an appropriate diagram:
Outbreak of Covid 19 served as a reason for increasing awareness regarding personal
hygiene. As, government has also spread awareness in relevance to importance of hygiene and
published guidelines regarding maintenance of personal hygiene (Wide gap between demand and
supply, 2020). This cause sudden rise in demand of hygiene products such as, sanitizers, soaps,
hand wash, toilet paper etc. But supply that was available in the market was limited as
production of such items was at limited level as per regular demand. This created gap between
demand of hygiene products and its supply in the market (Heal, 2017).
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Illustration 3: Wide gap between demand and supply. 2020
(Source: Wide gap between demand and supply. 2020)
Main effects of hygiene products on equilibrium price:
Equilibrium price can be defined as a state where supply of products and its demand in
the market balances each other. Hence, it can be stated that balancing effect in relevance to
demand and supply resulted in equilibrium state. While considering impact of Covid 19 on
equilibrium price of products that are related to hygiene, it can be noted that coronavirus crises
have suddenly improved market demand for products of hygiene, due to this sudden rise and
limited availability of supply in market, price of hygiene products increased. Due to this
increment, equilibrium price associated with hygiene products shifted in rightward direction
(Equilibrium price, 2020).
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Illustration 4: Equilibrium price. 2020.
(Source: Equilibrium price. 2020)
Identification and explanation of scenario by changes in demand and equilibrium price because
of Covid pandemic:
Because of pandemic of Covid 19, demand of hygiene products have drastically
increased which leads to right shift of equilibrium price, hence, price of product improved due to
sudden increase in demand and limited supply.
SCENARIO TWO
Difference between long and short run along with identification whether Airmalta runs in long or
short run:
Long run: Here, all production factors are variable and hence change in level of output
pertains change in it. Time period in the long run is often considered as more than a year. In the
long run, output can be enhanced by increasing inputs.
Short run: It is a period of time which enables increment in level of output by
improvising inputs in context to variable factors. In short run, some factors are fixed while some
factors are variable. Former does not change with changes in output but later changes along with
alteration in level of output (Hitomi, 2017).
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While evaluating operations of Airmalta it can be interpreted that company in operating
in short run. Reason is that factors of an organization pertains both fixed and variable factors
which incorporates only in short run as long run involves only variable factors.
Identification of fixed and variable costs that incurs in operations of Airmalta:
Fixed costs refers to expenses that remains constant despite of changes in output level in
a time period. It incurs even it level of production is nil in an organization. It is also termed as
overhead cost or supplementary costs. Such expenses are time related, that is, fixed cost remains
constant for a specific time. Fixed costs that incurred in Airmalta are aircraft leases, IT
investment.
Variable costs can be defined as that expenses that changes in context to alterations in
level or volume of production in business. Hence, it can be stated that fixed costs are directly
proportional to output level. Therefore, increment or decrement in variable cost is highly
dependent on alterations in output. It is also referred as prime costs as it is volume related. Type
of variable costs that incurs in Airmalta are dividend payments, maintenance costs, fuel
expenses.
Explanation of average total cost curve of Airmalta in the long run:
Average total cost curve represents average cost associated with per unit of production
output in a long run. Here, all inputs are considered as variable and production scale is
changeable. It showcase lowest total production cost at provided level of output in context to
long run.
Explanation of market structure in which Airmalta operates in:
Market structure differentiates and categorise an organization on the basis of types of
goods that is sold by entity and how its operations are influenced by external elements.
Evaluation of market structure simplifies understanding of characteristics of market. It can be
divided into four categories that are, perfect, monopolistic, oligopoly as well as monopoly.
 Perfect competition: It states no barriers in entry and exit of seller, hence, it has large
number of sellers and buyers. Nature of products of perfect competition market is
homogeneous. Hence, price of its product is uniform (Hursh and Roma, 2016).
 Monopolistic competition: In this market, products are differentiated but they are
closely related. Even in the market of monopolistic competition, there are large number
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of buyers and sellers as it incorporates no barriers on entry and exit. It pertains partial
control over rate or price of products.
 Monopoly: In this type of market structure, there is a single seller of a unique product in
a market. Product do not even have any closed substitute. Hence, no competition is faced
by business that operates in monopoly market as it pertains barrier on entry and exit of
seller. Products that are offered in this market are differentiated and sole entity is a price
maker in it.
 Oligopoly: This market structure incorporates small number of organizations . Hence,
buyers are large but sellers are few. Products that are offered in oligopoly market can be
homogeneous or differentiated. There is price rigidity in this market because of threat of
price war.
While evaluating market structure of Airmalta it can be identified that company is
operating in oligopoly market structure. As company operates in aviation industry which
incorporates limited number of large players. Reason is that aviation industry requires high
capital investment, high fixed expenditures and provides thin profit margin.
Profit or loss of Airmalta in 2017 and 2018:
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From the above diagram it can be interpreted that Airmalta incurred loss of €10.8 million
in the year 2017 while it gained profit of €1.2 million in the year 2018. hence, profitability of an
organization increased at a huge level over a year. Reason for this enhancement is reduction in
fixed expenses of business because of ERS and some other schemes. Further, it can be concluded
that growth strategy incorporated by Airmalta worked well for improvising its sustainability in
the long run.
SCENARIO THREE
Defining inflation:
Inflation can be described as a situation in which purchasing power of currency
decreases over a time period. It can also be expressed as general rise in level of price in an
economy of country over a period of time. As price level increases, buying capacity of each
current unit reduces which leads to decrement in purchasing power of money. It indicates loss of
real value of money in exchange medium. It is interpreted that inflation is caused because of
excessive growth in supply of money. It pertains affect on economy of nation in both positive as
well as negative manner. Its negative impact is that inflation boosts holding of money. Future
inflation possibility sometimes comes up as a reason for shortage of products as people buy large
number of products in present due to threat of increase in price of goods in future. While on the
contrary it is noted that adequate inflation level is required for the purpose of promoting
spendings at certain extent rather than investments, as spendings are required for nurturing the
growth of economy in a nation (Jager, 2017).
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Explanation of demand pull inflation and cost push inflation:
Demand pull inflation: It can be described as a upward pressure on level of price that
leads to shortage in level of supply in an economy. It is often described as a situation where high
money chases low products. Demand pull inflation explains the effect on imbalance within
aggregate demand as well as supply in a country. It states that when demand over weighs
aggregate of supply in an economy of a country than price level rises. It is referred as common
cause for inflation. This term usually pinpoints a widespread phenomenon, according to which,
when demand of consumer outpaces the availability of supply of consumer goods in that
situation demand pull inflation incorporates and standard cost of living goes up. While
considering causes of demand pull inflation it can be evaluated that growing economy and asset
inflation that is sudden increment in exports which leads to undervaluation of money.
Cost push inflation: It consists when overall price level increases because of
enhancement in cost of raw materials as well as wages. Hence, higher production cost reduces
aggregate supply in an economy of a country. As, there is no change in demand of products,
hence, increment in price from production leads to creation of cost push inflation. While
evaluating causes of cost push inflation it can be noted that most common cause that is
associated with of inflation of cost push type arises with enhancement of cost of production. For
example, increment in cost of inventory ultimately results in increase of costs. Hence, for taking
place of cost push inflation, demand of affected product is to be remained constant at the time of
alterations in its cost of production (Kamenica, 2017).
It is attributed that inflation in Malta may be due to both demand pull inflation as well as
cost push inflation. Former type of inflation may be occurred because of high demand goods that
arise in country due to threat of increase in price in future. Because of it shortage of products
attributed in a nation that serves as a reason for arrival of demand pull inflation. Apart from this,
due to shortage of goods, price level of raw materials and inventory that is required for running a
business increased, it leads to improvement in cost of products of products of an organization. As
cost of producing goods increased automatically, its price also increased. In this way, cost push
inflation attributed in a nation.
Identification and explanation of two methods of measurement of inflation:
There are various methods which can be utilised for measuring inflation, main methods
among them are described below in detailed manner:
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Consumer price index: It indicates measurement of aggregate level of price in an
economy. Consumer price index measures changes or alterations in purchasing power of
currency in a country and hence, is utilised for measuring rate of inflation attributed in a country.
It is type of a headline that showcase inflation. It examines weighs average in context to prices of
consumer products, for example, food products, transportation and medical care. For calculation
of consumer price index, price changes associated with market basket, that is, goods or services
purchased by consumers are computed. Changes in index of consumer price is utilised for
assessing price changes that is associated with standard living cost. This statistics is used most
frequently for identification of inflation as well as deflation (Konow and Schwettmann, 2016).
Consumer Price Index = (Market Basket cost in the given year / market basket cost in the base
year) * 100
Personal consumption expenditure: It is imputed expenditures of household over a
period of time. Hence, it can also be stated as evaluation of consumer spendings for a time
period. This component statistics consists actual as well as imputed household expenditures
which involves data that pertains durables as well as non-durable goods or services. It is a
measure for goods or services which is targeted to individual and also it is consumed by same.
Therefore, it is also termed as consumer spending. Same information is utilised by personal
consumption expenditure as in computation of customer price index but with different approach.
It tracks movement of price in relevance to products of economy (Mokyr, ed., 2018).
SCENARIO FOUR
Difference between GDP and GNP
GDP refers to Gross Domestic Product. It refers to the value of goods and services during
a particular period of time. It is a measure of the level of economic progress within the country
which is measured in the real as well as nominal terms.
GNP refers to Gross National Product. It is a value of the finished goods and services
which are produced by the citizens of a country during a particular financial year irrespective of
their location. This it is a measure of the economic growth made by a country during a particular
period of time.
The difference between GDP and GNP is explained as follows-
Basis GDP GNP
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Definition GDP refers to Gross Domestic
Product. In it the assessment of
value created by the
production of goods and
services within the economy is
assessed effectively and
efficiently (Polasky and et.al.,
2019).
GNP refers to Gross National
Product. In it the estimated
worth of the production of the
goods and services is
calculated within the course of
a year.
Uses The use of GDP can be made
for the purpose of ensuring
that the measure of strength of
the country's local economy
can be made highly effectively
and efficiently.
The use of GNP can be made
so that the assessment of the
nationals of a country are
performing economically.
Layman usage It is the value of the goods and
services which are produced
within the territorial
boundaries of the country.
It is the value of the goods and
services which are produced
by the different nationals of
the country.
Measurement of GDP by making the use of Expenditure method
The measurement of GDP can be done by making the use of different types of methods.
One of them is Expenditure Method. The calculation of the GDP under this method will be made
by considering the following elements-
Consumption- It refers to the spending which is made by the different types of
consumers on the various types of goods and services (Seligman, 2020).
Investments- It means the different types of investments which are made by the
businesses.
Government Spending- It means the expenditure which the Government incurs on the
different types of goods and services.
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Exports- It refers to the level of exports which is made by the country to the other
countries within the world.
Imports- It refers to the level of imports which are made by the country from the other
countries within the world.
Thus, Accordingly GDP= Consumption + Investments + Government Spending +
Exports + Imports.
Measurement of economic growth rate and distinction between real and nominal economic
growth rate
Economic growth rate is the measurement of the economic progress made by the country
during a particular period of time i.e. a year. The measurement of Economic Growth Rate can be
done through the use of different types of methods as well as techniques. It can be measured
using GDP, GNP etc. as these are the parameters through which the assessment of the
contribution of the economic growth rate to the economy of the countries can be made (Silva,
2019).
There is a particular difference between Nominal and Real GDP which can be explained
in the following manner-
Difference Nominal GDP Real GDP
Meaning In it the value of all the goods
and services produced within
the country is determined at
current market prices (Tignor,
2020).
It refers to the value of all the
goods and services,
investments, government
spending as well as exports.
Reliability Its reliability is less as
compared to the Real GDP.
Its reliability is more as
compared to the Nominal
GDP.
Financial Growth Analysis of Financial Growth
is quite difficult as compared
to Real GDP.
Analysis of Financial Growth
is easy as compared to
Nominal GDP.
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Representation of the difference between Real and Nominal Economic Growth Rate
There can be a difference between real and nominal economic growth rate of a country.
This can be represented by taking into account the inflation factor. Thus in this way the
difference between both of them can be explained by ensuring that the inflation can be adjusted
effectively and efficiently. Inflation is the increase in the level of general level of prices and thus
is an important economic parameter which can be used to measure the general tendency of
prices.
Thus in this way the parameter of the Economic Growth can be set in a highly effective
manner. Therefore the attainment of the goals and objectives can be made in the right manner by
making the use of appropriate methods and techniques (Tilton and Guzmán, 2016).
Change in Real Economic Growth Rate after the first quarter of the year 2020
The Real Economic Growth Rate has changed a lot after the first quarter of the year
2020. There has been a steady and continuous decline in this growth rate. The reason for this is
that there has been an impact of COVID-19 which has been seen in the different countries of the
world. The COVID-19 pandemic forced the various countries all over the world to put the
citizens under a strict lock down. This lock down due to the pandemic create a lot of problems as
well as issues for these countries. The reason was that the level of production of the different
industries and the essential services was affected due to the impact created by the pandemic and
the subsequent lock down which followed.
The growth rate in these countries has declined a lot as a result of the impact on the
different sectors of the economy. The decline in the growth rate has happened because of the
reason that The sectors like Primary, Secondary and Service have witnessed a deep impact as a
result of the pandemic. In the first quarter of 2020, the different countries all over the world
witnessed a steady growth rate because the impact of the pandemic was not witnessed at that
time. However with the progress of the year as the pandemic settled in it has created a negative
impact on the growth of the economies all over the world. This has been a major reason due to
which the countries all over the world have witnessed a slow economic growth (Tsoukalis,
2017).
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CONCLUSION
On the basis of this report it can be concluded that economic studies behaviour of human
in relevance to relationship with end or scarce resources that pertain alternative uses. It is
concerned with consumption, distribution or production of products. Economics studies choices
of individual, business, nation or government for making choices regarding resources allocation.
Further, this report states description of demand and supply along with movement or shift in
demand function in relation to hygiene products due to Covid pandemic. There is gap in demand
and supply regarding hygiene products. Further, coronavirus pertains several effects on
equilibrium price. Short and long run is distinguished and fixed and variable costs are identified.
Average total cost of curve is elaborated and market structure of company is identified. Along
with it, demand and cost pull inflation pertains various impact on inflation. There are various
measures for measuring inflation. Further, this report interpreted differences between gross
domestic products and gross national product. Other reasons that may lead to arrival of cost push
inflation is increase in cost of labour as it enhances overall expenditure of business. Apart from
this, natural disasters such as, floods, tornadoes and earthquake may also serve as a reason for
cost push inflation in nation.
https://www.marketplace.org/2019/09/23/4-ways-to-measure-inflation/
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