Principles of Economics
Question 1
The consumption budget constraints equation is such that C= W (24-T)
Where
C = the consumption
W = the income
T = Free time
Consequently, Jordan’s consumption budget will be defined as;
C = 30 (24 – T)
Hence his consumption budget constraints for the single day is as depicted in the diagram below where we can detect that the vertical intercept for the curve = $720 while the horizontal intercept = 24
Therefore, if Jordan enjoys daily income = 24 * 30 = $720
However, if he enjoys a full day, then his leisure = 24 and his consumption = 0 making the x-intercept to be 24 hours, opportunity cost = $30 the price of leisure = the opportunity cost = $30
Now, let the consumption price be P2
If he spends the 24 hours working then he gets $720/P2 consumption units since the y-intercept = 720/p2
Figure 1.1 Jordan’s consumption budget
Figure 1.2 Jordan’s consumption budget
Question 2
From Jordan’s consumption budget constraints, we can easily calculate his utility-maximizing points to determine his preferences concerning his consumption of free time as depicted by the indifference curve in figure 1.2. The assumption made for this case involving the determination of his utility-maximizing points is that Jordan prefers trading off consumption for greater free time. The depiction in IC1 indicates that the curve slopes to the right indicating increases as he is trading free times for consumptions. Therefore, his utility-maximizing point of the single day on the axis point is the 14 hours of free time and $300 consumption.
Question 3
The 20% wage cut that Jordan received due to the economic effects of the Covid-19 epidemic has greatly affected his consumption budget because of the reduced available funds. Therefore, his new equation for the consumption budget constraint due to the 20% reduction in his wages is
C = 24 (24 – T)
Therefore, his new single day budget constraint after the Covid-19 in comparison to the model before the Covid-19 epidemic is as described in figure 1.3 below. Therefore, figure 1.3 demonstrates the economic impacts of the pandemic on Jordan’s budget constraints. From it, it is evident that Jordan’s new budget constraint’s x-intercept is at 24 hours while his y-intercept is at $576.
Figure 1.3: Covid-19 budget constraint
Figure 1.3: Covid-19 budget constraint
Question 4:
Comparisons of Jordan’s budgets before and after the Covid-19 crisis in figure 1.2 and figure 1.4 shows that there is a significant change in his preferences for consumption and free time. The changes in preferences are noticeable from the changes witnessed in his indifference curves IC1 and IC2. In IC1 for instance, his utility-maximizing point at the x point of the axis was in correspondence to the 14 hours of free time and a $300 consumption. On the other hand, the utility-maximizing point in IC2 can be seen to have downward shifted to the point where 16 hours corresponds to the $240 consumption. Therefore, the graphs indicate that from the onset of the pandemic, Jordan’s preference for consumption and free time has been altered due to his 20% reduction in pay. Notwithstanding, it can still be noted that the slopes of the two curves are similar indicating that he still values his free time over consumption since the curves indicate that all of their slops are greater with increasing consumption
Question 5
From the statistics, it can be pointed out that the 20% in pay cut implies that the decrease has given him fewer incentives to work more hours for him to consume more as evidenced by the graph in IC2 that he now prefers to work even less and get more free time. There is also the substitution effect of the pay cut in giving him the opportunity cost of consumption that has reduced thereby giving Jordan incentives to have more free time. Generally, the impact of the pay cut to his life is that it has given him fewer incentives to work but a greater incentive to gain more free time thus causing him to work less for low consumption since the opportunity costs and incentives for working have been decreased.
Question 6
The opportunity cost is the description of the unavoidable tradeoffs amidst scarcity in which the consumers identify the needs to satisfy while foregoing the other needs. As a result of the 20% reduction in his pay, Jordan has also been forced to decrease his opportunity cost for free time buy 20% thereby impacting on his utility-maximizing choices since there is now greater incentives for his free-time because the economic costs of trade-offs between the consumption and free-time have been reduced. Furthermore, it can also be noted that Jordan has been incentivized to fancy the utility-maximizing point with more free-time as was witnessed in figure 1.4 in which the utility-maximizing point at the point of the axis where his free time was two hours more than before the 20% reduction in pay
Question 7:
The gross domestic product is the summation of the total market values of each product and services that are produced in a country’s economic territory in a certain period. The measures have its positives and negatives in its application in the determination of the effects of a crisis that has had on a country such as an impact the Covid-19 crisis has on the economy of nations. Some of the positive implications of its use include
Its simplicity. Notwithstanding the flaws within the value system of GDP, it is still a useful method of assessing the impact of crisis because of its ability to break an economy down into a single number that is simpler to understand. Besides, GDP is a raw figure that is used in showing the value being produced with the economy or nation. Despite not being able to show the extent of productivity as other measures do, GDP is often simpler to understand in comparison to the other measures.
GDP also fosters economic health. To begin with, François Lequiller the OECD economist suggests that GDP serves as an appropriate and efficient indicator of the economy’s well-being because it directly relates to the goods and services flowing within that economy. Consequently, a higher GDP indicates that production is also high thus implying that the residents have the required amounts of money or cash to buy goods and services. Furthermore, it also implies that the firms within the economy would be having adequate resources to employ people within the economy. Therefore, one of the most critical advantages of GDP is that it gives an appropriate elaboration of how well or bad the economy is doing.
Some of the negatives of the GDP value include the following.
It is an unclear indicator. Even though GDP is a good indicator of the consumption within the economy, it cannot differentiate between the high-quality consumptions and low-quality consumptions. For instance, the use of GDP in a scenario where a certain town gets major toxic waste spills that would cost a certain amount of money to clean up say $100 million, the town would eventually get the money injected in its GDP even though the cleaning of the toxic wastes is not a beneficial event. This case can be applied to what governments are doing with the Covid-19 pandemic as new government based policies affect the GDP statistics. Moreover, GDP also ignores the beneficial components of the society like education and healthcare that form the basic principles of the society but do not generate profits.
Question 8:
Consequentialist perspectives on ethics regard basing the judgment of the actions taken on the outcome generated in pursuant to certain values. Therefore, from this perspective, the institutionalization of new systems of payment for supporting households during the Covid-19 epidemic is ethically justifiable. For instance, the introduction of government support programs creates positive outcomes. Consequentialism selects the rules basing on their consequences. Whereas the real and full economic impacts of the Covid-19 virus are still not known, the outlook has declined ever since the government declared its initial Economic response on 12th March 2020. On the 30th day of March 2020, the Australian government announced that it would give the $130 billion job keeper payments to help keep Australians in their jobs as the country fights with the pandemic consequently bringing up the federal governments support of the nation’s economy to about $320 billion across the forward estimates and reaching percentages of about 16.4 % of the GDP annually. This outlines that although the introduction of support by the government created a negative effect on the national debt, it has created a positive impact on the economic stimulus of the country. This is because helping maintain and keep people busy at work is important in supporting their welfare (Misha Ketchell 2020). Moreover, if not for the job keeper initiative, the unemployment in the country would be at 11.7% up from 5.2% I just a single month. To add on, the Australian Bureau of Statistics estimates that for April 2020, the unemployment rate in the country was close to 6.2% and there are about 6 million Australians supported by the job keeper initiative.
Question 9:
From the literature, deontological ethics otherwise known as deontology refers to the normative theories suggesting that morality of actions is based on whether the actions are on their self-right or wrong under series of rules and not just by their consequences. Therefore, this framework applies to the scenario that the Australian government finds itself in which it has to justify its income support payment meant for mitigating the economic impacts of the Corona pandemic to individuals/citizens. The framework suggests that there is a need to follow through sets of rules in the process of completing the moral duty of the society irrespective of the consequences. The United Nations Committee (UN Committees, 2005) dictates that countries must always ascertain that there is adequate access to social security schemes offering minimum essential benefits to its citizens. In line with these views, the deontological ethical framework of the government suggests that the government has a moral duty of providing both support to the residents. This is because the government is obliged to use available resources to satisfy the minimum obligations. The implementation of the job seeker package supports payment and has brought governments support for economic growth to $320 billion. Therefore, it is clear that it has acted decisively to use any resources at its hand to meet its obligations to the society thus m=being justified since its mortality is right with regard to the series of rules put forth by the United Nations on national obligations.
Question 10:
The substantive judgment of fairness relies on inequalities of some considerations of their allocations like freedom, income or happiness whereas the procedural judgment relies on the set rules of the games that effected the allocations and may, therefore, be assessed based on the voluntary exchange of private properties that have been obtained through legitimate means. The definitions illustrate that both the [procedural and substantive judgments of fairness indicate that the government allocations are justified.
Substantive Judgment:
Strictly speaking, the substantive judgment perspective may suggest that these governmental allocations are unfair especially in consideration of the criteria used to award individuals. For instance, the job seeker package is the ineligibility demonstrated by the 4,500 employees of the Dnata, an airline catering company since it was sold to the Emirate group and excludes payment to employees of companies controlled by sovereign entities. Besides, its shortcoming can also be seen from the perspective of the casual teenage employees who still live at home but have worked for less than two hours per week for any organization within the last 12 months and earned say $100.
Procedural Judgment:
From the perspective of the procedure judgment of fairness, the job seeker package is also seen to have certain limitations. For example, the part-time teenagers described above, it is evident that the teenager would receive a 1500% increase in their pay while the single mom would receive a 50% cut. This is unfair especially considering that the teenager is at the start of his or her employment while the single mother may have been in the workforce for long and contributed significantly to the society for a long period
References
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Bielefeld, S. (2018). Cashless Welfare Transfers for ‘Vulnerable’ Welfare Recipients: Law, Ethics, and Vulnerability. Feminist Legal Studies, [online] 26(1), pp.1–23. Available at: https://link.springer.com/article/10.1007%2Fs10691-018-9363-6 [Accessed 3 Sep. 2019].
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treasury.gov.au. (n.d.). Economic Response to the Coronavirus | Treasury.gov.au. [online] Available at: https://treasury.gov.au/coronavirus.