Habits and demand changes after COVID-19

TL;DR

This paper examines how COVID-19 lockdowns affected consumer habits and demand for goods, revealing that demand changes depend on lockdown duration, satiation, and substitutability effects, with policy implications for economic recovery.

Contribution

It models demand shifts post-lockdown in a two-sector economy, identifying conditions for demand expansion, contraction, or sector inactivity, and offers policy guidance.

Findings

Demand for goods can shrink or expand post-lockdown.

Prolonged lockdown may lead to sector inactivity.

Policy measures can prevent sector inactivity.

Abstract

In this paper, we investigate how the COVID-19 pandemics and more precisely the lockdown of a sector of the economy may have changed our habits and, there-fore, altered the demand of some goods even after the re-opening. In a two-sector infinite horizon economy, we show that the demand of the goods produced by the sector closed during the lockdown could shrink or expand with respect to their pre-pandemic level depending on the length of the lockdown and the relative strength of the satiation effect and the substitutability effect. We also provide conditions under which this sector could remain inactive even after the lockdown as well as an insight on the policy which should be adopted to avoid this outcome.