Microeconomics: Examining Consumer Behavior, Taxation, and Automation

This microeconomics assignment delves into various key concepts and their practical applications. It begins by analyzing consumer behavior using budget lines and indifference curves to determine optimal consumption bundles, particularly in the context of childcare subsidies. The assignment then examines the challenges faced by the restaurant industry due to changing consumer preferences driven by the price difference between eating out and cooking at home. Furthermore, it explores the impact of income tax on labor and leisure choices, illustrating substitution and income effects. Finally, the assignment discusses the potential risks of automation on employment, focusing on the vulnerability of routine tasks and the implications for various sectors, particularly logistics, transport, and office support staff. The analysis is supported by relevant figures and references to current articles, providing a comprehensive overview of the topics covered.

Running head: MICROECONOMICS
Microeconomics
Name of the Student:
Name of the University:
Author’s Note:

MICROECONOMICS 2
Table of Contents
Answer to Question: 1.....................................................................................................................3
Answer to Question: 2.....................................................................................................................4
Answer to Question 3......................................................................................................................5
Answer to Question 4......................................................................................................................6
Reference List..................................................................................................................................8

Y
Y1
X1 X2
X
BL
IC1
IC2
MICROECONOMICS 3
Answer to Question: 1
Figure 1: Optimal Bundle Determination
(Source: Created by Author)
The figure above depicts the budget line of the Doreen’s family. The budget line
represents all the possible combinations that a person can purchase given the prices of the goods
and income of the person. As per the given situation Doreen’s family income is $60,000 a year
and it is clearly stated that they will not be able to spend more than 50% of their family income
on childcare. If the amount of goods and services associated to childcare is measured in “X” axis
and the same for other domestic purposes is measured along the “Y” axis, the optimum position
of the family could be depicted by the IC1 i.e., the first indifference curve. This is because at this
point the family will be consuming more of the domestic goods and spend less than half of their
annual family income that is $10,000 on childcare services (NewsComAu. 2018).

MICROECONOMICS 4
Now if the government starts providing a subsidy of 85% on the total cost of child care
and the process of the other goods remain unchanged. The family will start consuming more of
the goods and services related to child care as with the reduced price their relative income will
increase and the amount of other goods purchased will remain the same. As a result of this the
budget line will rotate horizontally and due to this the optimal bundle will change to IC2.
Answer to Question: 2
As per the article it has been observed that the restaurant industry has not experienced a
good year during 2016. Numerous restaurants had experienced bankruptcy and the forecasts
regarding the market is not so good looking as well. The industry is suffering a sluggish growth
rate and this negative momentum is expected to continue until 2017 (Forbes.com. 2018). The
author of this article has identified the cause behind this is to be the spread of process. That is the
difference between the price of foods at restaurants and price of foods at home. Simply, it can be
stated that the cost associated with eating out at restaurants is increasing at a much greater pace
than that of the cost of food at grocery stores.
It is a matter of fact that restaurant prices have increased by 2.4%. On the contrary, the
food at home prices have went down by 2.2% in comparison to the last year. Because of the cost
structure of the restaurants the price of food is high as food production there involves cost
associated with labor and rental costs. As a result of this increased price level the consumers are
now have changed their preferences from food away from home to food at home. On the other
hand, it has also been argued that the increasing number of competitors in the restaurant market
provided the customers with numerous alternatives (Forbes.com. 2018). In addition to this
grocery stores are now providing prepared meals and meal delivery services are there as well.
This is providing the customers with a number of cheap alternatives to the restaurant foods.

A DF
C
B
I
I2
I1
H
G
E
MICROECONOMICS 5
Hence in response to the questions provided it can be stated that the customers have shifted
towards cooking food at home because of the rise in prices of restaurant foods.
Answer to Question 3
Figure 2: Labor and Leisure Consumption after Imposition of Income Tax
(Source: Created by Author)
In the figure above when there is no income tax then the budget constraint is FGH.
However, when there is an income tax the budget constraint becomes EGH. The slope of the new
budget line is flatter than that of the old budget line. In this case the customer initially makes a
choice to stay at point A. After the imposition of the tax the consumer moves to point B. This is
the substitution effect for which the person has increased the consumption of leisure and reduced
the work hour ((Ft.com. 2018)).

MICROECONOMICS 6
As the imposition of this tax makes the consumers worse off and in such cases the
consumer will no longer remain on the initial indifference curve I1 and will move to a less
preferred indifference curve I2. This is because of the pure income effect as the consumption of
both leisure and work have reduced significantly. This is because in this case leisure and labor
both are considered to be normal good.
Answer to Question 4
As it is quite evident from the article that machine has eased the working life of the
human being. For instance it is stated in the very article that the way a computer dispense an
expert radiology diagnostic advice is just an example of how a job is correctly done by a white
collar worker. Hence it can be stated that automation in the modern era of work environment can
easily put into risk the job of an employee (The Economist. 2018). The machines are nowadays
so trained that they are not only performing the manual works but also are performing the works
which were previously performed by the information workers. However, the experts argue about
the fact the vulnerability of automation is not that much concerned about whether the work is
manual or white collar but it depends on whether it is routine or not.
Presently it is a widely asked question that which are the tasks that are mainly vulnerable
due to automation. A study conducted by a number of scientists suggest that among 702 workers,
computerization will risk the job of 47% workers. In fact the people who conducted the study
have warned that the people who are working within the logistics and transport industry or office
support staff are more likely to be substituted by the computer capital of the country. The same
will follow for the people who are working in the sales and services sector such as in cash
counters, clerks or cashiers and telemarketers (The Economist. 2018). These people have
concluded that the recent developments and advancements in the computer technology will I turn

MICROECONOMICS 7
put a substantial share of the employment within a wide range of occupations at risk. Hence it
can be stated that the people who are working in the sectors which are mainly being controlled
by the human capital but can easily be automated are at risk. The ease of automation mainly
depends on the intensiveness of the workplace towards the input. For instance if the process is
more human capital intensive then it will not be easier to automate the process.

MICROECONOMICS 8
Reference List
Forbes.com. 2018. Forbes Welcome. [Online] Available at:
https://www.forbes.com/sites/daniellemarceau/2016/11/22/low-food-costs-oversupply-and-
changing-consumer-preferences-spell-bad-news-for-restaurant-industry/#643fd85a4fff
[Accessed 7 Apr. 2018].
Ft.com. 2018. Supply-side guru Arthur Laffer hails Trump’s tax policy. [Online] Available at:
https://www.ft.com/content/8cb63288-bc85-11e6-8b45-b8b81dd5d080 [Accessed 7 Apr. 2018].
NewsComAu. 2018. Changes to the child care rebate system. [Online] Available at:
http://www.news.com.au/lifestyle/parenting/what-the-child-care-changes-mean-for-you/news-
story/75447014c6e02d23f2b6aec34711e5d9 [Accessed 7 Apr. 2018].
The Economist. 2018. Automation and anxiety. [Online] Available at:
https://www.economist.com/news/special-report/21700758-will-smarter-machines-cause-mass-
unemployment-automation-and-anxiety [Accessed 7 Apr. 2018].