Effect of Proportional Price Changes on Economic Decisions

Bakery Production Decision

A textile manufacturer is deciding between two production technologies. Technology A is labor-intensive, requiring many workers. Technology B is capital-intensive, requiring expensive machinery. The manufacturer is considering opening a factory in one of two regions with different input costs:

• Region 1: Average wage is $15 per hour; Machine cost is $60 per hour.
• Region 2: Average wage is $20 per hour; Machine cost is $100 per hour.

Based on a comparison of the input costs, in which region would the manufacturer have a stronger economic incentive to adopt the capital-intensive Technology B, and why?

A coffee shop owner currently pays baristas $15 per hour and an espresso machine costs $30 per hour to run (including maintenance and energy). A new city-wide minimum wage law increases barista pay to $20 per hour, while the machine's running cost remains unchanged. Assuming the owner's goal is to minimize production costs, this change in hourly costs provides a new economic reason for the owner to consider using more automated machinery relative to human labor.

Inflation and Purchasing Decisions

Commuting Decision Analysis

Match each economic scenario with the correct description of the change in relative prices and the resulting incentive.

A student's budget allows for spending on either coffee or bus fare. A cup of coffee costs $3 and a one-way bus ticket costs $1.50. To make a decision based on the trade-off, the student calculates that the cost of one cup of coffee is equivalent to ____ bus tickets.

A city government wants to reduce traffic congestion by encouraging commuters to switch from driving their personal cars to using public transportation. Currently, the average daily cost of driving is $10, and a public transport day pass costs $5. Which of the following policy changes would create the strongest economic incentive for a commuter to make this switch?

Harvesting Technology Adoption

A furniture manufacturer uses both skilled carpenters (labor) and automated cutting machines (capital) to produce chairs. Initially, the daily wage for a carpenter is $200 and the daily operational cost of a machine is $400. The government then introduces a subsidy that reduces the machine's daily operational cost to $200. Arrange the following steps in the logical order that describes how the manufacturer would economically reason about adjusting their production method in response to this change.

Supermarket vs. Corner Shop

Relative Prices and Technology Choice in the Industrial Revolution