Question 2: (70) 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. There is no income tax. Part (a): (10) 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. Part (b): (10) Suppose that there is a fixed cost of $300 per month for child care that must be paid as soon as the mother starts working. Show how the fixed cost affects the budget line in part (a). Discuss briefly her likely labour supply response. Use indifference curves on your graph to support your answer. Determine the share of substitution and income effects in the total effect. Assume that the government defines a child care subsidy program such that mothers who are working up to 25 hours per month receive an equivalent of 8o percent of their earnings as child care support. Page1of 2 ECON 481: Labour Economics: Assignment-2 Deadline: May 27, 2024 Those who are working between 25 to 6o hours per month are fully reimbursed. The subsidy de- creases by 50% of earnings for hours beyond 60 until it has been completely phased out. (Example: if amother 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.) Part (c): (10) Define the equation for the subsidy program for all three parts.(Hint: i. o to 25 hours, ii. 25 to 60 hours,iii.6o to 100 hours) Part (d): (10) Use your answer in part (d) and define the budget constraint after this policy. (Hint: Budget constraint for each interval is equal to the corresponding childcare subsidy plus the budget constraint in part (b)) Part (e): (15) Draw the new budget constraint. Carefully label all the kinked points, axes and intersection point on the axes. Part (f): (15) Determine the likely response to the child care subsidy program in terms of hours of work (increase, decrease, no change) if she has already been working for: i. 10 hours ii. 40 hours iii. 70 hours (Hint: Create a table with current hours and expected change of hour after policy implemented)