This essay describes which microeconomic policy is more effective in understanding the consumption pattern of couples and families with a male/female head of household. In this essay, each policy will be described and further analysis will be given to understand which policy is more effective. As we move further in this essay I will discuss a policy of my own which I believe can be more effective. My analysis of the effectiveness of the government’s policy decisions are based on a technical approach based on consumer theory, optimization, expenditure minimization and the Slutsky decomposition providing a scientific approach of the effectiveness of different microeconomic policies.
Table of Contents
Scenario without policy (Initial level of demand and utility for couples, female head of households and male head of households
Within this essay the scenario problem we will be focusing on involves the government implementing a choice of two different policies within a hypothetical economy. The government’s main target under its welfare programme is to increase consumption of entertainment but also eventually to encourage couples without children to start a family. Other objectives that the government should include is to improve the standard of living within families. The government will be using a number of policies effectively by considering a VAT increase and a subsidy for families (female head of household and male head of household). The two basket of goods that the government will be analyzing consists of Q1 (Food & Beverages) and Q2 (Entertainment). Both basket of goods are said to be consumed by three different groups of consumers such as couples, female head of households and male head of households I.E. families. The pattern of expenditure for both goods are shown within appendix 1.1. The first policy the government intends to...
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