Consider an economy where the representative consumer has a utility function u (C; L) over consumption C and leisure L. Assume preferences satisfy the standard properties we assumed in class. The consumer has an endowment of H units of time, faces a wage rate w and receives prots from the representative rm. Assume that available time in our model of the representative consumer, H; is intended to capture any time available for leisure and working in the market, so it excludes time allocated to production at home such as house repairs and caring for children. Suppose that the government were to provide free day care for children.

(a) (4 points) Explain how you would account for the direct impact of the day care program in the representative consumer model.

(b) (6 points) Explain the eects of the day care program on consumption, leisure, and hours worked for the representative consumer referring clearly to the relevant components of the model.