The paper extends the canonical SIR model to analyze the interaction between economic decisions and epidemics. It shows that people reduce consumption and work to lower infection risks, which mitigates the epidemic but worsens the recession. The competitive equilibrium is not socially optimal because infected individuals do not fully account for the economic impact of their actions on infection spread. A simple containment policy, while causing a more severe recession, saves roughly half a million lives in the U.S. The model incorporates both supply and demand effects of the epidemic on the economy. The supply effect arises from reduced labor supply due to infection risk, while the demand effect comes from reduced consumption due to infection risk. These effects together lead to a large, persistent recession. The paper also considers scenarios with medical preparedness, treatments, and vaccines, showing how these factors influence the epidemic's severity and economic impact. The results highlight the trade-off between the severity of the recession and the health consequences of the epidemic. The model demonstrates that optimal policy involves balancing containment measures to reduce infections and deaths, even if it means a severe recession. The paper emphasizes the importance of understanding how epidemics end and the optimal way to achieve herd immunity. It also discusses the role of containment policies, the impact of medical treatments and vaccines, and the robustness of the results to different parameter configurations. The analysis shows that the trade-off between economic and health outcomes is inevitable, and optimal policies must balance these considerations.The paper extends the canonical SIR model to analyze the interaction between economic decisions and epidemics. It shows that people reduce consumption and work to lower infection risks, which mitigates the epidemic but worsens the recession. The competitive equilibrium is not socially optimal because infected individuals do not fully account for the economic impact of their actions on infection spread. A simple containment policy, while causing a more severe recession, saves roughly half a million lives in the U.S. The model incorporates both supply and demand effects of the epidemic on the economy. The supply effect arises from reduced labor supply due to infection risk, while the demand effect comes from reduced consumption due to infection risk. These effects together lead to a large, persistent recession. The paper also considers scenarios with medical preparedness, treatments, and vaccines, showing how these factors influence the epidemic's severity and economic impact. The results highlight the trade-off between the severity of the recession and the health consequences of the epidemic. The model demonstrates that optimal policy involves balancing containment measures to reduce infections and deaths, even if it means a severe recession. The paper emphasizes the importance of understanding how epidemics end and the optimal way to achieve herd immunity. It also discusses the role of containment policies, the impact of medical treatments and vaccines, and the robustness of the results to different parameter configurations. The analysis shows that the trade-off between economic and health outcomes is inevitable, and optimal policies must balance these considerations.