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)