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Homework answers / question archive / Question A: Tatum is a mother of Anny (1 year old)

Question A: Tatum is a mother of Anny (1 year old)

Economics

Question A:
Tatum is a mother of Anny (1 year old). Tatum derives utility from income Y (i.e. a disposable income that she can spend on consumption goods other than childcare) and leisure L according to the utility function U(Y,L)=Y*L . She has non-labour income of $200 per day. Her time endowment is 16 hours per day that can be spent either on Leisure (which mostly consists of caring for Anny) or labour market work. If Tatum works she has to leave Anny in the child care. Tatum’s wage is $20 per hour, while the childcare cost $5 per hour. Tatum only uses childcare when she works.

What is Tatum’s reservation wage? Round your answer to the first decimal point.

Question B:

Staying with the scenario in QA.  Compute how many hours Tatum will work under these circumstances. Round your answer to the first decimal point.

Question C:

Stay with the scenario in QA .  Now suppose the government introduces the childcare subsidy that covers 100% of childcare costs of working parents. How many hours will Tatum work under the new policy? Round your answer to the first decimal point

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