COVID-19 (Coronavirus) is having a devastating impact on the health and wellbeing of millions of…

COVID-19 (Coronavirus) is having a devastating impact on the health and wellbeing of

millions of people worldwide. The World Health Organization recognizedthe virus as a

pandemic on 11 March 2020 and cases of COVID-19 have now been reported in over 200

countries and territories.

The COVID-19 crisis has been called a twin health and economic emergency. To slow virus

transmission rates and flatten the curve, many governments have implemented lockdowns

that restrict the movement of residents. While the nature of these lockdowns varies from

country-to-country, the economic consequences are unambiguous. Production, spending,

and incomes have declined. Many businesses have been forced to close or reduce their

trading hours resulting in increasing levels of unemployment.

During this assignment, you will be asked to apply the economic concepts and models that

you have learnt in ECON1020 to a range of COVID-19 related issues.

Q1 Take a typical worker, Jordan. Before the onset of COVID-19, Jordon earned $30 per hour

(after taxation) in their job. Assume that Jordan has no other sources of income or savings.

Write down the equation of Jordan’s consumption budget constraint (for a single working

day). Using a model with consumption on the vertical axis and hours of free time on the

horizontal axis, plot Jordan’s budget constraint. Label all relevant elements of this diagram

and state the value of the horizontal and vertical intercepts. (4 marks)

Q2 Now, add an indifference curve to the model you developed in Q1 and label it IC1. This

indifference curve should be at a utility maximising point and show Jordan’s corresponding

choice of consumption and hours of free time. As you have not been given any information

regarding Jordan’s preferences, state one assumption that you have made about Jordan’s

utility maximising choice and one assumption that you have made about the slope of

Jordan’s indifference curve. (3 marks)

Q3 The arrival of COVID-19 brought financial hardship for Jordan’s employer. As a result,

Jordan has had their hourly wage cut by 20% (a common occurrence around the world at the

moment). Write down a new equation for Jordan’s consumption budget constraint (for a

single working day). Using the same model developed in Q1-Q2, plot Jordan’s new budget

constraint. Clearly state the value of the horizontal and vertical intercepts. (4 marks)

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