lec9 - ECONOMICS 175 Professor Ronald D. Lee 2/17/09...

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Professor Ronald D. Lee 2/17/09 Lecture 9 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley. Do not share, copy or illegally distribute (electronically or otherwise) these notes. Our student-run program depends on your individual subscription for its continued existence. These notes are copyrighted by the University of California and are for your personal use only. D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. LECTURE Fertility Survey Q1: How many children do you intend to have in your lifetime? A. None B. One C. Two D. Three or more E. Abstain from responding. Most chose C. Q2: Would you agree to have one more birth than your answer to the previous question for a payment of (choose the lowest): A. 10,000 B. 100,000 C. 500,000 D. 1,000,000 E. Abstain from responding Most chose C and D. Q3: Would you agree to have one less birth than this for a payment of lowest (choose lowest): Same answer choices Most people chose D. Q4: What do you think is the most important reason to have a child? A. Cement the marriage bond, become closer to spouse B. To care for you when you are old C. Carry on the family name D. Fulfill religious obligation E. Abstain from responding. Few chose D, about even distribution across the other answers. In poorer countries, more people tend to say they want children to help out around the house than in developed countries. Value Time Theory (cont.) As you recall we made several assumptions about the household to create a model of optimal number of children. We derived a budget constraint and had utility curves to find the utility maximizing child output of a family. We found there is an income effect when the non-wife income changes. The family has more income so they will want more normal goods so they will have more children. Increase in wage (w) Suppose that there is just a big increase in full income (Y + wT); the same increase as the increase in Y elicited but this time it comes from a change in the wife’s wage rate, w. If they have the maximum number of children then the wife is not working so a change in w does not matter. So this point (n max, 0) is still on the budget constraint. Likewise, we are assuming the change in w elicits the same change in full income as the change in Y did (green lines) so the y-intercept of the new budget constraint will be the same as that of the budget constraint from the change in Y. The whole budget constraint rotates downward (purple line). This is because w is higher which affects the slope, making it steeper. With the same size increase in full income, coming
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lec9 - ECONOMICS 175 Professor Ronald D. Lee 2/17/09...

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