In accordance with the question it has been found that Jordan, a typical worker earns his living $30 per hour after deduction of tax. Considering the fact that he has no other resource from where he can earn his living and save is incomes the budget constraint can be:
720 = xFH + yC............................................1
This clearly reflects the consumption budget constraint of Jordan. Here x is the number of free hours that Jordan has on a particular day and FH is the unit of free hours apart from his working hours for which he earns 30 dollars on an hourly basis. C is the consumption and x represents per unit of consumption accomplished by Jordan. Considering the fact that Jordan has no other attributes upon which he will exhaust his income, the budget constraint is represented by equation 1. The Slope as per the straight-line equation is reflected by dy/dx (Hutchinson, 2017).
From the diagram, it is pretty clear that if we consider that all the income is being spent upon the free time which means that Jordan has a full day with no work then all of its earning exhausted free time spends without work. Now if Jordan works for a full day of 24 hours considering that fact the he has 30 dollars of earning on an hourly basis then the total amount of income that Jordan can have is 24 into 30, which equalize to $720. It is clear that 720/y will be the intercept at the x-axis from the origin. if it is been considered that all of the income is been exhausted for consumption and there are no hours of free time Jordan enjoys the full day in working only then the intercept at the y-axis will be 720/x. The major constraint for Jordan is related to exhausting his budget which all total is 720. Hence, he can only consume a maximum of up to 720 if it utilizes all of its exhausting its income is possible. If all of the income is exhausted upon consumption then 720/X is the intercept while if all of it is exhausted in our 720/y becomes the intercept at the x-axis.
The maximization of utility reflects the fact that a consumer should buy goods and services up to that point where the last dollar spend upon the commodity provide the same marginal utility as the last dollar spent on each and every other good. This is reflected in the fact that the marginal utility of "a" divided by the price of "a" should be equal to the marginal utility of B divided by the price of B and so on (Fan et al., 2016). It reflects the optimal amount of free time that will be as the consumption bundle by Jordan. This is the particular place where the indifference curve will be tangent with the consumption budget constraint line.
Clearly from the diagram it has been found that IC1 represents the indifference curve at point E and it is meeting with the consumption budget constraint there. Moreover, the consumption budget constant is a tangent at point E to the indifference curve. The maximization of utility in the case of Jordan encompasses the assumption that consumers are rational about decision-making regarding their consumption of income and the consumption bundle with the objective of profit maximization (Yi, 2017). This is the only assumption in the case of Jordan to maximize his Utility function where it has been considered the Jordan is rational in decision-making regarding the choice of his consumption bundles.
Due to the COVID-19 situation it is a common train throughout the world almost that a certain amount of wage is been deducted from the wage of the employees (Banwari, 2020). As a result the employer of Jordan also encounters the same situation where a 20% deduction of wage is being imposed upon Jordan. The hourly income of Jordan which was initially $30 reduced to $24 due to a deduction of 20% which amounted to $6. This $24 on an hourly basis generated the new consumption budget constraint function which can be represented as follows:
576 = xFH + yC
As per the budget constraint it has been found that the total exhaustible income available to Jordan is 576 dollars that he can exhaust upon free hourly time as well as upon the consumption that Jordan wants to accomplish.
New slope function will become
dy/dx = - FH//C
And the corresponding intercepts will be 576 /Y in the x-axis if all the income is exhausted upon a free hourly time while it will become 576/X if all the income is exhausted in consumption. $576 came after deducting 144 dollars from $720 due to a 20% deduction for COVID-19 by the employer of Jordan. This shifts the budget constraint to a different level keeping the slope the same.
Before the onset of COVID-19 situation there was a different budget constraint for Jordan however due to COVID-19 have changed and Jordan has a new Budget Constraint depending upon which the indifference curve will also change to a utility-maximizing. the indifference curve can be marked as IC2 in the below diagram which represents the particular point where the new budget constraint is a tangent.
This new budget constraint was produced due to the reduction of wage and consequently reduction in income of Jordan by his employer as the COVID-19 situation persisted over time. As per the new budget constraint it has been found that the consumption bundles per amount of consumption in the hours of free time also changed and it is at a utility-maximizing point of F as shown in the diagram. The choice of consumption and hourly free time for Jordan has decreased due to a decrease in income level constant have changed as well as the intersecting point of the budget constraint with that of the indifference curve also changed correspondingly. It can be said about the overall level of utility that it has shifted leftward towards the origin which reflects the fact that the utility has decreased over time due to the persistent presence of COVID-19 situation (Banwari, 2020).
Banwari, V. (2020). Unit-6 Consumer Behaviour: Ordinal Approach. IGNOU. Retrieved 16th May 2020, from http://www.egyankosh.ac.in/bitstream/123456789/53986/1/Unit-6.pdf
Fan, J., Li, J., Wu, Y., Wang, S., & Zhao, D. (2016). The effects of allowance price on energy demand under a personal carbon trading scheme. Applied Energy, 170, 242-249. Retrieved 16th May 2020, from https://www.sciencedirect.com/science/article/pii/S0306261916302677
Hutchinson, E. (2017). 6.3 Understanding Consumer Theory. Principles of Microeconomics. Retrieved 16th May 2020, from https://ecampusontario.pressbooks.pub/uvicmicroeconomics/chapter/6-3-understanding-consumer-theory/
Supply, L., & Maurer, S. (2018). Labor Economics SS 18. Retrieved 16th May 2020, from https://www.wiwi.uni-konstanz.de/typo3temp/secure_downloads/97167/0/21419518fac8f2f77147ed474c9e5aaad9376bfb/2-_Labor_Supply_01.pdf
Yi, G. (2017, September). The effects of basic income on labor supply. Paper for the 17th BIEN Congress: Implementing a Basic Income. Retrieved 16th May 2020, from https://basicincome.org/wp-content/uploads/2015/01/Gunmin_Yi_The_Effects_of_Basic_Income_on_Labour_Supply.pdf
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