(Note: on the test the question may have different dollar figures or may ask you to evaluate a change in policy in which the subsidies are withdrawn). Suppose the government were to provide a $4-per-hour subsidy for families with an employed mother who purchases child care. Using a budget constraint and indifference curve framework, show how this policy might impact the decision of a mother who is not currently employed (be sure to have the number of hours worked before and after the change clearly indicated). In another graph, show how how this policy would impact the hours supply decision of a mother of a preschooler who is already working.
(Note: on the test the question may have different dollar figures or may ask you to evaluate a change in policy in which the subsidies are withdrawn). Suppose the government provides a subsidy of $50 per day to all families with children, regardless of their employment status. Show the potential impact of this policy on both working and non-working moms. Explain fully.