Student Name:

Student ID:

Word Count:
Executive summary

The economy of any country is susceptible to fluctuations in the market due to changes in

various factors. Global epidemics such as the COVID-19 pandemic is one such factor that has

had dire effects on the Australian economy, and that of the world at large. Forced to adapt and

assimilate new strategies to deal with the pandemic, as well as prevent increase in the number of

infected persons for each country, most economies had to shut down some of the significantly

productive sectors such as air travel, and product exports. This resulted in a huge reduction in the

revenue streams, forcing organizations directly affected to lay off some employees as their

income had decreased. To counter these effects, the Australian government developed a fiscal

response namely JobKeeper's Payment scheme, to help businesses and nonprofit organizations

most affected by the pandemic, and ensure that they do not lay off their employees. This move

has helped the country maintain unemployment numbers at levels which would have otherwise

soared high, low. This paper analyzes the impact of this initiative to the eligible persons, the

country's economy, and assesses more strategies the government could take up to better the

situation, applying microeconomic principles.

Table of Contents
Executive summary..........................................................................................................................i

i
Question 1........................................................................................................................................1

Is JobKeeper effective in retaining casual employment?............................................................1

How is JobKeeper’s impacting individual demand?...................................................................2

Has elasticity changed?................................................................................................................4

Question 2........................................................................................................................................6

Is this change in demand having an impact on the supply side?.................................................6

Will moving some manufacturing back to Australia help?.........................................................6

What strategies can the government adopt to help grow individual industries?.........................7

Is this likely to influence consumer and producer welfare?........................................................9

Will there be a deadweight loss?...............................................................................................11

References......................................................................................................................................12

ii
Question 1

Is JobKeeper effective in retaining casual employment?

Yes, JobKeeper is effective in retaining casual employment. After the COVID-19 pandemic,

organizations and businesses have been faced with the challenge of maintaining and paying their

employees. This meant loss of jobs for most employees, a move that would lead to increase in

financial strains for most households. These strains would then result in unprecedented spending

patterns, leading to a fall in the customer price index. To avoid this, the Australian government

introduced this scheme, which is a payment scheme whose purpose is to help businesses

seriously affected by the pandemic, to maintain more employees in their jobs (Borland &

Charlton, 2020, p. 310). The scheme has a detailed eligibility criterion for both businesses and

employees, where casual employees who have been working for an organization as at 1st March

2020, and are still employed by the same organization for instance, are eligible for the

JobKeeper’s payment. Markey (2020, p. 151) discusses that casual employees fall under the

group of most vulnerable groups following the COVID-19 pandemic. This is likely because,

unlike permanent employees they are unprotected by mechanisms such as job security, and other

income smoothing mechanisms. The JobKeeper's Payment scheme, however, helps the

employers of affected businesses collect payments on behalf of their long-term casual workers,

reducing the wages they pay their employees, helping these organizations retain their employees

in the process. This also ensures they don't have to re-hire new employees when the pandemic

subsides. Below is a representation of JobKeeper’s general impact on employment in Australia.

1|Page
Figure 1. Effect of JobKeeper on Employment in Australia.

How is JobKeeper’s impacting individual demand?

Individual demand is a person’s demand for a product or service, based on the individual’s

desires, and their ability to afford these products or services. Several factors affect individual

product demand, namely product price, the concentration of the market, risks surrounding

product demand, and its elasticity (Popescu & Seshadri, 2013, p. 2135). To best describe these

factors in terms of the product price, and quantity demanded by an individual, while considering

all other factors to be constant, the individual demand curve is used. Below is an illustration of

the individual demand curve.

2|Page
Figure 2. individual demand curve example

Product and service demand depends on a person's income. To afford commodities, they have to

be in line with the consumer's income, with richer consumers demanding more products, and

poorer consumers demanding less. The individual demand curve analyses that an increase in

consumer income, increases the income of a commodity, with a decrease in income, decreasing

the demand, a change known as the income effect as discussed by Lo (2014, p. 56). With the

Covid-19 pandemic, many businesses were affected, resulting in laying off of their employees or

slashing their income. This situation resulted in an average of approximately 1 million

unemployed persons in Australia, and output loss incurred by the economy increased to a

number likely to exceed $100 million. Following this, revenues started falling, leading to a

deficit in both household and business incomes, and an increase in debts. This resulted in a

general reduction of consumer’s purchasing power. However, with JobKeepers, individuals

obtain $750 every week from the government, and get to keep their jobs from their employers

until the pandemic subsides and normalcy is restored. As a result, eligible Australians have been

able to maintain their revenue stream through the crisis. For these individuals, the economic

impact of the pandemic has eluded them, meaning they are positions to either maintain or raise

their individual demand on commodities at this time. Through the Jobkeeper’s payment scheme,

3|Page
some recipients are making more than they would have made with their usual pay, meaning that

for almost 1.6million Australians, there has been an increase in income through the scheme, and

have therefore had their individual demands raised based on this factor. While the new income

stream has increased the ability to purchase these goods, the desire to purchase these goods on

the other hand, has decreased, due to uncertainty surrounding the pandemic, in a way reducing

individual demand (Debata, Patnaik, & Mishra, 2020, p. 4).

Individual purchasing power is defined as the ability of a consumer to purchase certain products

or services, based on income, goods supply and prices. Research by Furlanetto, Ravazzolo, and

Sarferaz (2019, p. 317), has already shown that variations in supply and price, are the key

determinants of product demand, meaning, despite JobKeepers increasing the income of some of

the individuals, the Australian economy has suffered inflations. This has resulted in increase in

prices of commodities. With these inflation effects mostly felt in the employment sector, some

citizens may be able to afford commodities, but the willingness to buy has diminished

considerably in the last few months.

Has elasticity changed?

In the past few months, changes in product prices have had little to no effect on whether or not

customers will purchase the goods, illustrating market inelasticity. The last six to eight months

have seen surges in commodities such as facemasks, toilet papers, and food commodities. With

the announcement of the pandemic, came the need for preventive and protective measures such

as wearing of facemasks, stocking up on food commodities, and other livelihood necessities such

as toilet paper. This resulted in a wave of panic buying, with consumers trying to have enough

preserved goods, as well as stock up on essential products, giving a rise in consumer spending.

With the increase in purchases, the supply of goods, despite Australia having a very stable and

4|Page
reliable and controlled market, experienced shortages, which in turn led to a surge in commodity

prices. This also resulted in a dip in the country’s GDP, recording the largest recession for over

30 years of around 0.3%. While JobKeeper scheme has since helped improve the GDP since

then, the ripple effect is still felt. However, none of these happenings deterred consumers from

purchasing the items. The huge demand resulted in high sales, but also led to high prices for the

market as is expected in an inelastic market (Voinov & Filatova, 2014, p. 4). The law of demand,

and that of supply, are interlinked within the lines of price increase and decrease. Law of demand

states that an increase in price leads to a decrease in quantity demanded, and a decrease in price

leads to an increase in quantity demand, while that of supply states that a price increase, leads to

an increase in supply, and a price decrease, leads to a decrease in quantity supplied when other

factors are constant. Below is a supply-demand curve illustrating the situation.

Figure 3. Demand and supply curve.

5|Page
Income elasticity relates how sensitive a commodity on demand is affected by changes in

income. Despite changes in income for several Australians, some went the extra mile to spend up

their savings, to stock up on necessities. As discussed by Antoniadou, Mirman, and Santugini

(2016, pp. 169-170), despite the decrease in income, and increase in prices, the purchase on

normal goods did not decline, but that on inferior goods declined noticeably as a result on

uncertainty surrounding employment.

Question 2

Is this change in demand having an impact on the supply side?

Demand and supply go hand in hand. Fluctuations in product demand always result in a deep

variation on the supply chain, and this is the concept upon which the demand and supply curve is

built (Gölgeci, Karakas, & Tatoglu, 2019, p. 170). JobKeeper payment scheme has helped

sustain the demand for commodities in the country. A product’s demand is most affected by the

consumer’s income, and the nature of goods, whether normal or inferior, and the government has

helped sustain the consumer income through JobKeeper. The ability to purchase these goods

from the market maintains a high demand for them, which in turn develops a need to supply

more goods and meet these needs, else a scarcity occurs in the market. According to Wan,

Dresner, and Evers (2018, p. 1027) ,a tipping on either side of the supply chain, whether demand

or supply, leads to cost inflations or supply chain disruptions, which is why integration of the

two is necessary to manage fluctuations in the Australian economy.

Will moving some manufacturing back to Australia help?

Yes. It will help bridge the gap between demand and supply. The manufacturing industry has

been largely affected by the enacted lockdowns since the pandemic was announced. Australia,

6|Page
like many other countries, imports most of its manufactured products from countries such as

China, the United States, and Japan, among others. After the lockdown, there was no movement

between these countries. China, being the top of the manufacturing chain in the world, closed

down its borders, effectively cutting off its supply to other countries. This has resulted in major

losses felt across the globe, as the scarcity led to an increase in demand with no supply. Moving

the manufacturing back to Australia will redevelop the supply chain, and make Australia a self-

sustaining economy, reducing the scarcity of goods.

What strategies can the government adopt to help grow individual industries?

With the pandemic kicking in, the Australian government had to take protective measures such

as testing, tracing and treatment, as recommended by WHO, and lockdown its economy to limit

the movement around the country (Higginson et al., 2020, p. 6). These measures, while they

protected the citizens, they also had an economic impact in the country, due to closure of

industries such as mining which is their largest export industry, and construction, their largest

employer according to Higginson et al. (2020, p. 6). This is what led the government into

developing policies such as the JobSeeker and JobKeeper initiatives to support businesses, their

employees and the unemployed. There are other strategies the government could adopt to aid

innovation, fuel the growth of local industries and prepare the country for future unprecedented

challenges such as the COVID-19 pandemic. They include:

Creating resilient and localized supply chain

The pandemic resulted in significant but unforeseen disruptions to the supply chain in Australia

and many other parts of the world. With countries having to lockdown and close their borders

unexpectedly, imports such as medical supplies and other products that maintain the supply chain

were interrupted. This meant that Australia and other countries that were dependent on imports

7|Page
from nations such as China that locked down their country and restricted their exports had to

strategize and come up with new, and innovative ways they would be able to sustain the needs in

their economy. In Australia, medicals suppliers make up the top list of imported goods with at

least 68% coming from Europe and the United States (Higginson et al., 2020, p. 11), which were

closed down after the epidemic. By creating a local market which sustains the production of such

goods, and other imported goods, the local manufacturing industry in Australia will produce

enough goods to meet the rising demand, and the country will be able to sustain their supply

chain, during the pandemic and other similar situations. This action should result in development

of individual industries, and also prepare the manufacturing ecosystem for supply and demand

side shocks in case emergencies occur.

Government subsidy on local industries

There are several legal requirements governing registration and running of a company in

Australia. Apart from registering a company, and paying the registration fees, other fees are

expected to be paid to the Australian Securities & Investments Commission(ASIC) on top of

taxes. With the pandemic, the incomes on businesses have declined, as people are only willing to

incur expenses on normal goods, meaning companies are suffering in terms of income streams.

While the government has taken the JobKeeper's initiative to support the businesses most

affected, according to Qin and Kum Fai (2020, p. 3), government subsidies have always gone a

long way in mitigating customer uncertainties in new products, and new businesses by extension,

and would therefore promote these business. Further, the current tax limits are at $10 million for

small businesses taxed at 27.5% tax rate, and those over $10 million, receiving a 30% tax rate.

The effects of the pandemic on the economy and profit rates of organizations should have the

government consider reducing these tax rates, and expanding the limits to which organizations

8|Page
are considered small businesses, or big investments. This will help reduce the amount of money

expected from the businesses.

Establishing policies to support local industries, and engaging the private sector in the

development of these policies

The COVID-19 pandemic had companies shutting down, and others experience a decrease in

productivity, due to uncertainty surrounding the demand of their products. Companies do not

trust their ability to make a reliable income, from their products, with the decrease in incomes.

This is a challenge faced by any local industries in various countries, and the government should

step in with policies than ensure the local products are the first priority in the market. This will

lead to a reduction in the number of goods imported, increasing the exports, and increasing the

country's dependability on itself, a practice the Chinese government has effectively implemented,

making it a top manufacturer, as documented by Mok and Kan (2013, pp. 178-179). These

policies will set the government as a facilitator and not a manager of the manufacturing industry,

nurturing growth in the local industry.

Is this likely to influence consumer and producer welfare?

Consumer and producer welfare are likely to be impacted by these strategies. These two welfares

depend on two key factors; producer surplus and consumer surplus. Producer surplus is defined

as a measure of the manufacturer’s well-being based on their product income, and consumer

surplus as consumer wellbeing, based on their product consumption (Camejo, McGrath, Miraldo,

& Rutten, 2014, p. 440). These two measures are used to evaluate the effect government

incentives may have on markets, with producer surplus showing the variations between the price

a producer receives, and the number of goods they are able, and willing to supply, and the

consumer surplus being the price a customer pays, and that which they are willing to pay. With

9|Page
these strategies incorporated in the local industries, consumers are likely to enjoy lower prices,

compared to what they would have paid for the imported commodities, benefiting the consumer,

and is referred to as consumer surplus.

On the other hand, when the Australian government takes measures to promote local industries,

the imported goods will reduce in number, creating a demand for the local products. This will

benefit the producers leading to a producer surplus. JobKeeper also helps the consumers afford

the products, as well as provides the producers with consumers for their products, increasing

both the producer and consumer surplus. Summing consumer and producer surplus define the

total economic welfare. According to Esteves and Reggiani (2014, p. 53), economic welfare is

largely determined by product prices and their demand. Below is a graph illustrating these two

principles.

Figure 4. Consumer and Producer surplus graph.

10 | P a g e
Will there be a deadweight loss?

Deadweight loss is defined as the costs incurred by the society due to market inefficiencies, and

resulting from a lack of equilibrium between demand and supply of resources. With the decrease

in trade due to COVID-19 pandemic, a reduction in trade has been experienced. There is bound

to be a lack of balance in equilibrium when it comes to resource allocation, sharing, and market

demand and supply, meaning the Australian economy will have a deadweight loss.

11 | P a g e
References
Antoniadou, E., Mirman, L. J., & Santugini, M. (2016). The income effect under uncertainty: A

Slutsky-like decomposition with risk aversion. Economic Modelling, 55, 169-178.

doi:10.1016/j.econmod.2016.02.012. Retrieved from

https://lesa.on.worldcat.org/oclc/6022833705

Borland, J., & Charlton, A. (2020). The Australian Labour Market and the Early Impact of

COVID-19: An Assessment. Australian Economic Review, 53(3), 297-324.

doi:10.1111/1467-8462.12386. Retrieved from

https://lesa.on.worldcat.org/oclc/8663533965

Camejo, R. R., McGrath, C., Miraldo, M., & Rutten, F. (2014). Distribution of health-related

social surplus in pharmaceuticals: an estimation of consumer and producer surplus in the

management of high blood lipids and COPD. The European Journal of Health

Economics, 15(4), 439-447. Retrieved from

https://lesa.on.worldcat.org/oclc/7786231516.

Debata, B., Patnaik, P., & Mishra, A. (2020). COVID-19 pandemic! It's impact on people,

economy, and environment. Journal of Public Affairs. doi:10.1002/pa.2372. Retrieved

from https://lesa.on.worldcat.org/oclc/8667106449

Esteves, R. B., & Reggiani, C. (2014). Elasticity of demand and behaviour-based price

discrimination. International Journal of Industrial Organization, 32(1), 46-56.

12 | P a g e
 doi:10.1016/j.ijindorg.2013.10.010. Retrieved from

https://lesa.on.worldcat.org/oclc/5497437085

Furlanetto, F., Ravazzolo, F., & Sarferaz, S. (2019). Identification of financial factors in

economic fluctuations. Economic Journal, 129(617), 311-337. doi:10.1111/ecoj.12520.

Retrieved from https://lesa.on.worldcat.org/oclc/7248715669

Gölgeci, I., Karakas, F., & Tatoglu, E. (2019). Understanding demand and supply paradoxes and

their role in business-to-business firms. Industrial Marketing Management, 76, 169-180.

doi:10.1016/j.indmarman.2018.08.004. Retrieved from

https://lesa.on.worldcat.org/oclc/7820005297

Higginson, S., Milovanovic, K., Gillespie, J., Matthews, A., Williams, C., Wall, L., . . . Paolucci,

F. (2020). COVID-19: The need for an Australian economic pandemic response plan.

Health Policy and Technology. doi:10.1016/j.hlpt.2020.08.017. Retrieved from

https://lesa.on.worldcat.org/oclc/8679003133

Lo, A. Y. (2014). Negative income effect on perception of long-term environmental risk.

Ecological Economics, 107, 51-58. doi:10.1016/j.ecolecon.2014.08.009. Retrieved from

https://lesa.on.worldcat.org/oclc/5900169522

13 | P a g e
Markey, R. (2020). The impact of the COVID-19 virus on industrial relations. JOURNAL OF

AUSTRALIAN POLITICAL ECONOMY(85), 147-154. Retrieved from

https://lesa.on.worldcat.org/oclc/8631636129.

Mok, K. H., & Kan, Y. (2013). Promoting Entrepreneurship and Innovation in China: Enhancing

Research and Transforming University Curriculum. Frontiers of Education in China,

8(2), 173-197. Retrieved from https://lesa.on.worldcat.org/oclc/5580094221.

Popescu, D. G., & Seshadri, S. (2013). Demand Uncertainty and Excess Supply in Commodity

Contracting. Management Science, 59(9), 2135-2152. Retrieved from

https://lesa.on.worldcat.org/oclc/7973589240.

Qin, Z., & Kum Fai, Y. (2020). Analyzing the Effect of Government Subsidy on the

Development of the Remanufacturing Industry. International Journal of Environmental

Research and Public Health, 17(3550). Retrieved from

https://lesa.on.worldcat.org/oclc/8600893035

Voinov, A., & Filatova, T. (2014). Pricing strategies in inelastic energy markets: Can we use less

if inelastic energy markets: Can we use less if we can't extract more? Frontiers of Earth

Science, 8(1), 3-17. doi:10.1007/s11707-013-0410-y. Retrieved from

https://lesa.on.worldcat.org/oclc/5540451295

14 | P a g e
Wan, X., Dresner, M. E., & Evers, P. T. (2018). How Do Delivery Variety Decisions Contribute

to Sales? An Empirical Study on Demand and Supply Integration. Decision Sciences,

49(6), 1024-1060. doi:10.1111/deci.12301. Retrieved from

https://lesa.on.worldcat.org/oclc/7958221615

15 | P a g e