Problemn Three (Chapter 3) A single mother has y=$400 in non-labour income and w=$15 per hour in labour income. She has up to 100 hours available from which she can decide how much to work. The tax rate is zero. a) Write down the budget constraint and draw it on a graph. Make sure to label the axes and intercept correctly. Assume that the mother is already working 40 hours per month. Show the indifference curve and the optimal point on the graph. Suppose that there is a fixed cost of $300 per month for childcare that must be paid as soon as the mother starts working b) Show how the fixed cost affects the budget line in part (a). Briefly, discuss her likely labour supply response. Use indifference curves on your graph to support your answer. (Hint: leisure is a normal good) c) Determine the share of substitution and income effects in the total effect. Assume that the government defines a childcare subsidy program such that mothers who are working up to 25 hours per month receive an equivalent of 80 percent of their labour income as childcare support. Those who are working between 25 to 60 hours per month are fully reimbursed. This amount decreases by 50% of the labour income earned for hours beyond 60 until it has been phased out. (Example: If a mother works 61 hours, half of the earned income on the last hour is deducted from the full support. That is, she will receive $292.5 in childcare support.) d) Define the equation for the subsidy program for all three parts. Och s 25 childcare subsidy 25