econ313prelim1spring06 - Econ313-1 Spring 2006 Talia Bar...

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Econ313-1 Spring 2006 Talia Bar Prelim 1 This exam consists of four questions. Label your blue books clearly with your name. The exam is worth 65 points. To help you allocate time you can plan on spending about one minute per credit point. The exam is closed-book. You may use a calculator. Good luck. 1
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Question 1 (38 minutes) ABC University is considering adopting a policy that would help faculty members who are parents cover the cost of day-care. The policy makers have two goals: (1) increase the utility of faculty members who are parents (2) increasing the number of research hours (assuming more day-care consumption increases research hours). A parent faculty member maximizes each pay period his/her utility for day-care ( D ) and a composite of all other consumption goods ( C ) subject to a simple linear budget constraint, and has an income of m = $1000 per pay period to allocate between C and D . The cost of hourly day-care in town is p D = $12 . The cost of the composite good is p C =$1 . Theparen tsupportcomm itteeproposestog ivealumpsumsubs idyo f G = $200 dollars per pay period to any parent who wants the support. That is, if a faculty parent chooses to receive the support his/her income would be m = $1000 + $ G
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econ313prelim1spring06 - Econ313-1 Spring 2006 Talia Bar...

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