Suppose the market for in-home child-care service (“baby sitting”) in East Lansi
ID: 1201346 • Letter: S
Question
Suppose the market for in-home child-care service (“baby sitting”) in East Lansing is shown in below. Child-care service suppliers are local high school students and MSU undergraduates. Parents in East Lansing (permanent residents and graduate students) are the demanders of this service. The current price for child-care service is $5 per hour per child.
1i. If MSU decides to expand the undergraduate student population from 40,000 to 50,000 the expected effect on the child-care market in East Lansing is
a. an increase in the price of child care and a corresponding increase in the number of students supplying the service.
b. a reduction in the price of child care because of an increase in supply
c. a surplus of workers resulting from decreased demand for the service
d. no effect
1ii. Suppose that the number of MSU undergraduates remains the same but that the University takes steps to toughen academic standards (all students must take foreign language, calculus, and writing and maintain a 2.5 GPA). The expected result on the child-care market is
a. The opportunity costs to students of working as baby-sitters increase.
b. The supply of baby-sitting services in East Lansing decreases.
c. Fewer students will be willing to give up time to baby-sit at any price.
d. All of the above.
1iii. Suppose that the East Lansing city government adopts a minimum wage of $8 per hour per child for all in-home child-care service in the City. What is expected to happen as a result?
a.The number of unemployed students increases.
b.The price for child-care in East Lansing increases.
c.The total amount of money paid to child-care workers (“baby sitters”) decreases if demand for the service is price elastic.
d.All of the above.
e.None of the above.
1iv. Instead of the minimum wage, suppose that the state government adopted a wage subsidy for child-care workers equal to $3 per child-hour of care. Child-care workers would receive a payment from state government equal to $3 for hour of child care provided. As a result of the subsidy,
a. the price families in East Lansing would pay for child care will be less than $5.
b. child-care workers in East Lansing would earn more than $5 per hour in total.
c. the total amount of money paid to child-care workers in EL increases.
d. all of the above.
e. none of the above.
Explanation / Answer
Ans.1i.
If MSU decides to expand the undergraduate student population from 40,000 to 50,000 the expected effect on the child-care market in East Lansing is b) a reduction in the price of child care because of an increase in supply.
Ans.1ii.
Suppose that the number of MSU undergraduates remains the same but that the University takes steps to toughen academic standards (all students must take foreign language, calculus, and writing and maintain a 2.5 GPA). The expected result on the child-care market is d.) All of the above.
Ans.1iii.
Suppose that the East Lansing city government adopts a minimum wage of $8 per hour per child for all in-home child-care service in the City. What is expected to happen as a result? e.) None of the above.
Ans.1iv.
Instead of the minimum wage, suppose that the state government adopted a wage subsidy for child-care workers equal to $3 per child-hour of care. Child-care workers would receive a payment from state government equal to $3 for hour of child care provided. As a result of the subsidy, d.) all of the above.
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