Olivia is a single mom with two pre-school aged kids. To provide for her family, Olivia is working as a waitress for 7hrs/day and makes $10/hour, but she is worried that she’s not earning enough to cover the costs of child care. a) Draw the appropriate diagram illustrating Olivia’s labor supply decision on the graph below. b) A Senator has proposed a new program that would provide benefits to single moms of $10/hr to help pay for the costs of childcare. Each single mom would receive $10 from the program for each hour they work in the labor market. Modify the graph below to show how this new program would affect Olivia’s budget constraint. c) In response to the new program, Olivia decides to work 10hrs/day. Add this decision to the labor supply graph below d) Did the income or substitution effect dominate for Olivia? How do you know?
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Olivia is a single mom with two pre-school aged kids. To provide for her family, Olivia is working as a waitress for 7hrs/day and makes $10/hour, but she is worried that she’s not earning enough to cover the costs of child care.
a) Draw the appropriate diagram illustrating Olivia’s labor supply decision on the graph below.
b) A Senator has proposed a new program that would provide benefits to single moms of $10/hr to help pay for the costs of childcare. Each single mom would receive $10 from the program for each hour they work in the labor market. Modify the graph below to show how this new program would affect Olivia’s budget constraint.
c) In response to the new program, Olivia decides to work 10hrs/day. Add this decision to the labor supply graph below
d) Did the income or substitution effect dominate for Olivia? How do you know?
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