BACKGROUND AND QUESTIONS 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) MACQUARIE BUSINESS SCHOOL Department of Economics Q4 Now, add a second indifference curve to the model you developed in Q1-Q3 and label it IC2. This indifference curve should be at a new utility maximising point and show Jordan’s corresponding choice of consumption and hours of free time. State what has happened to Jordan’s choice of consumption and free time. What can be said about Jordan’s overall level of utility after the onset of COVID-19? (3 marks) Q5 Using the model created in Q1-Q4, show the income effect, substitution effect and overall effect of Jordan’s wage decrease. Compare the relative size of the income and substitution effects shown on your model. What can be inferred about Jordan’s preferences for free time and consumption from this comparison? (4 marks) Q6 Explain the economic link between opportunity cost and a decrease in wages. How might this have impacted Jordan’s utility maximising choice? (2 marks) Q7 Economists have predicted that the outbreak of COVID-19 will lead to large decreases in the gross domestic product (GDP) of many countries. Discuss the pros and cons of using GDP to measure the impact of COVID-19 on economic activity. (5 marks) Several government policies have been proposed to attempt to mitigate the economic effects of COVID-19. Some are using traditional monetary and fiscal policies (such as cutting interest rates, quantitative easing and bailouts). Others are trying out non-traditional methods (such as direct cash transfers, loans to businesses conditional on maintaining employment and wage subsidies). The Australian Government has implemented several economic measures in response to COVID-19. These include providing two separate $750 payments to social security, veteran and other income support recipients to support households. They are also expanding eligibility to income support payments and establishing a new, time-limited Coronavirus supplement to be paid at a rate of $550 per fortnight to eligible recipients. Q8 From a consequentialist perspective, is the introduction of payments to support households and income during the COVID-19 crisis (described above) ethically justified? (5 marks) Q9 Using a deontological ethical framework, construct an argument either in favour of the payments to support households and income during the COVID-19 crisis (described above) or against them. (5 marks) Q10 Evaluate the introduction of the payments to support households and income during the COVID-19 crisis (described above) from the perspective of substantive and procedural judgements of fairness. (5 marks) ADDITIONAL READING The Treasury. 2020. Income support for individuals. Economic Response to the Coronavirus Fact Sheet. Available from: https://treasury.gov.au/sites/default/files/2020-03/Fact_sheetIncome_Support_for_Individuals_0.pdf MACQUARIE BUSINESS SCHOOL Department of Economics The Treasury. 2020. Payments to support households. Economic Response to the Coronavirus Fact Sheet. Available from: https://treasury.gov.au/sites/default/files/2020- 03/Fact_sheet-Payments_to_support_households_0.pdf IMPORTANT INFORMATION GENERAL The assignment is strictly 2000 words maximum (excluding your reference list and any words used to annotate your model). There is no specific word count for each question, but you must keep within the total word limit across all questions in the assignment. The assignment must be prepared using a word processing program (e.g. Microsoft Word). As detailed below, however, your final submission must be in PDF format. Any included figures should be prepared electronically. The most commonly used tools for drawing economic models are Microsoft Word or Google Drawings. For those of you who are new to drawing such models electronically, there are some handy YouTube tutorials on how to get started. Answers to any questions that have been handwritten or hand-drawn will NOT be marked. The assignment will count towards 30% of your final mark. The is no need to add a cover page to your assignment or repeat the text of the questions in your submissions (simply answer questions in order, denoting Q1, Q2, Q3… etc.). FORMATTING/REFERENCING The assignment must be 1.5-spaced. Use a standard font (e.g. Times New Roman, Calibri, Arial) with a font size of 12. All sources used in the assignment should be appropriately referenced using a standard referencing system (e.g. Harvard style). Please consult Macquarie University Library’s resources for further information about referencing. You do not need to reference the unit textbook, lecture slides or lecture recordings. However, you should be mindful not to plagiarise from these, or any other sources, as per the note below. SUBMISSION The assignment is due at 11 am on Monday, 18 May 2020. No extensions will be granted. There will be a deduction of 10% of the total available marks made from the total awarded mark for each 24 hour period or part thereof that the submission is late (for example, 25 hours late in submission – 20% penalty). This penalty does not apply to cases in which an application for Special Consideration is made and approved.