Mathematical Model of the Supply Shock Crisis (COVID – 19)

Abstract

Presented here is a simplified mathematical model describing a supply side crisis caused by the coronavirus pandemic (COVID – 19). Model of a single-product economy is presented where the supply shock has a constant acceleration. If amount of the supply shock has a modest positive acceleration the product earnings are positive and increasing with the passage of time. We observe an economic growth. If amount of the supply shock has a large positive acceleration the product earnings are negative and decreasing with the passage of time. We observe an economic decline. If amount of the supply shock has a negative acceleration the product earnings are negative and decreasing with the passage of time. We observe an economic decline. Economic mechanism of the supply side crisis is conceptually close to a mechanism of economic growth caused by investment. Moreover, economic system is able to overcome a modest supply-side shock and provide economic growth there. Further, the system with the passage of time produces and delivers enough amount of product to both satisfy the demand and compensate for the supply-side shock.

Keywords: supply side shock, economic crises, mathematical models

JEL Classification: C02, E32, O11