6.1 Governments generally limit the amount of the subsidy. For example, in Yukon, Canada, the 2012 maximum subsidy for an infant is $625 per month.

In 2009, a family’s maximum child-care subsidy was 85% of the cost of care in Nevada and 70%

in Louisiana, $72.50 per week in Alabama, 10% of gross income in Maine, and $153 per month plus

$5 per month for each extra child in Mississippi.

A binding limit on the subsidy creates a kink in the budget constraint. Show how a limit changes the analysis in the Challenge Solution.