Using Modern labor economics by Ronald Ehrenberg 4th edition

Question 1 Assume that a state government currently provides no childcare subsidies to working single parents, but it now wants to adopt a plan that will encourage labor force participation among single parents. Suppose that childcare costs are hourly and suppose that the government adopts a childcare subsidy that pays $3 per hour for each hour the parent works, up to eight hours per day.

a. Draw a budget constraint for the single mother without the subsidy. explain the y and x axis intercept and slope

b. Draw a budget constraint for a single mother who gets the subsidy. explain the y and x axis intercept and slope

c. Discuss the likely effects on labor force participation and hours of work.

Question 2

Joe currently works full-time at an auto parts store earning an hourly wage of $20.00.He was recently given an increase in pay and now earns $25.00 an hour. Assuming that Joe is allowed 20 hours a day for work or for leisure, answer the following questions:

a) Describe how the substitution effect relates to Joe's willingness (desired hours)to work.

b) Sketch the daily budget constraint for Jack before the pay change

c) Sketch the new budget constraint for Jack under the new wage rate.

Question 3

the Budget Constraint: y = -2.5x + 25

Utility A (Indifference Curve)

Value of Goods and Services ($)	Time Spent in Household Production(Hours)
15	1
5	2
3	6

Utility B (Indifference Curve

Value of Goods and Services ($)	Time Spent in Household Production(Hours)
20	4
10	6
7	10

Graph the budget constraint for utility A and utility B

b) Draw each utility curve on the same graph as above

c) Which utility curve is preferable?