How affect sally willingness to purchase childcare services

Reference no: EM132194074

Question - Sally, a working single mother of a three-year-old child, faces two options. She can raise her child at home, which is associated with H₁ = 8 hours [household work] per day. Alternatively, Sally can purchase day care services (fixed cost: $40 per day) and reduce [household work] by 4 hours (i.e., H₂ = 4). In any case, Sally receives financial support from her mother ($40 per day). Sally's hourly wage rate is $5.

(a) For each case [option], draw Sally's budget constraint, in one diagram.

(b) Compare Sally's budget constraints. Which choices are attainable in both cases? In addition, highlight Sally's attainable choices that are exclusive to each case.

(c) How will Sally decide [between the two options] (i) if she has a strong preference for leisure? (ii) if day care services become cheaper?

(d) The government of Sally's country decides to lower trade barriers. As a consequence, Sally can now choose from a much greater number of products. How will this affect Sally's willingness to purchase childcare services?

Reference no: EM132194074

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