Anecdotes of how Australian are responding to COVID-19: Rational?

This blog is part of a series relating to the economic impacts of the COVID-19, novel coronavirus outbreak of 2020.

There has been significant media coverage on the impact of the COVID-19 is having with regards to individual consumers’ behaviour. Stories are rampant of people hoarding supplies from toilet paper to rice to face masks and hand sanitisers. 

As an economist, the question I get asked is how do I explain such action. I turn to our first year economics textbook that states that “consumers are assumed to be rational and that firms are assumed to be profit maximising” [1]. Under the assumption of rational choice – this is defined as people weighing up the benefits and the costs of each possibility whenever they must make a choice. In addition, for individuals, the assumption of rationality means that they make choices and decisions in pursuit of their own self-interest.

Individuals occupy two roles in the market – they are the consumers of goods and services and they are also inputs in the production process – either as labour inputs or entrepreneurs. With this in mind, I will look at each of these aspects below.

Labour inputs are the self-interest decisions of giving up leisure time for work with the benefits of work, wages or pay, outweighing the value of leisure. Workers at the aged care facility in Macquarie Park on the 4th of March, rationally chose not to attend work as the potential personal cost of working and being exposed to the COVID-19, and potentially carrying it home, outweighs the benefits. They communicated to the Health Services Union that “they were concerned that by attending work they risked exposing immunocompromised members of their own family” [2]. This occurred following an aged care worker testing positive and a 95 year old resident death. From the same aged care facility a second resident, an 82 year old man also passed away from the virus [3].

Entrepreneurs are identified as the small business operators that combine the different resources to produce the goods and services. In industrialised countries, these business account for over 90% of businesses in the economy [4].  Stories are increasingly being reported of businesses, from retail to restaurants, being most affected in terms of reduced sales with “Sydney City food courts are … feeling the lack of business … they are trading down some 50%” [5]. For other businesses, their sales have continued as usual but they themselves have decided to temporarily closed their door. Two local businesses in close proximity have made the decision to close their doors. One was due to one of their customers being suspect as having the virus. Another, it was due to their concern about their own health and that of their staff. When I asked the owner, she said that business has never been better but “I’m scared to get sick. My work involves touching clients’ face and body [beauty salon] and I don’t know where they have been or who they have been in contact with. I’m closing until this [COVID-19] settles”. The behaviours detailed are very rational given the nature of virus spread. One manager of a large national business had recently sent his workers home to work remotely – those that he had identified as being potentially of high risk. These are his pregnant employees and those with heart or lung issues. His direction was he did this given his duty of care to his workers. 

I’m most interested to hear what others have been observing from this virus. 

The next blog will discuss the Australian government’s response to this virus.

  1. Stiglitz, J.E., Walsh, C.E. (2002), Principles of Macroeconomics Third Edition, Norton & Company, pg 26.
  2. Wahlquist, C., (2020), Coronavirus: Union defends staff of Sydney aged care home after ‘most’ call in sick, The Guardian, https://www.theguardian.com/world/2020/mar/05/coronavirus-union-defends-staff-of-sydney-aged-care-home-after-most-call-in-sick (Accessed 11 March 2020 at 11am).
  3. Nguyen, K., Moret, G. (2020), Third coronavirus-related death in Australia after man in his 80s dies in Sydney hospital, ABC News, updated 9th March at 12:06am, https://www.abc.net.au/news/2020-03-08/coronavirus-related-death-in-sydney-hospital/12036410 (Accessed 11 March 2020 at 11am).
  4. Harel, R., Schwartz, D., Kaufmann, D. (2019), Small businesses are promoting innovation!! Do we know this? Journal Small Enterprise Research, Vol 26, 2019 Issue 1, pp. 18-35.
  5. Shopping Centre News (2020), The coronavirus outbreak and Australia’s retail economy, https://www.shoppingcentrenews.com.au/shopping-centre-news/industry-news/the-coronavirus-outbreak-and-australias-retail-economy (Accessed 11 March 2020 at 1pm).

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