The UK Parliament hires you and your colleagues to deliver a report that will enlighten the Parliament about the effect of labour market policies targeting single mothers.

Question 2) Suppose that for every hour worked in the labour market, single mothers use an hour of childcare, and the hourly childcare cost is pounds. The members of Parliament are interested in evaluating the impact of two different policies:

• Policy one provides single mothers with a lump sum benefit.
• Policy two provides single mothers with a fixed tax cut for every pound earned.

What are the impacts of these two policies on labour supply (hours worked and participation rates) of single mothers in the UK (United Kingdom)? Do you expect the impact of these two policies to be different? Why?