C175_Midterm_sp08_Answer_key

C175_Midterm_sp08_Answer_key - Name: Student ID Number:...

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Name: Student ID Number: Instructor: Ronald Lee University of California, Berkeley March 11, 2008 Departments of Demography and Economics Demography/Economics C175 Midterm Examination Please answer all parts of all questions, using the spaces on the examination itself, and writing on the back of the paper if necessary. On every page of the exam, write your name and SID. You may spend up to 65 minutes on the exam. There are 60 points possible. The possible points are indicated in front of each question, and this is also roughly how many minutes you should spend on each question, for a total of 60 minutes and 60 points. That leaves you five minutes to go over your exam before turning it in. Make sure you completely label any diagrams you present. Ronald Lee, March 11 2008.
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Name: Student ID Number: 1. Elizabeth, a highly paid professional woman, has two potential marriage partners: Sam who does not earn much money but who is a lot of fun to be with, and George who has a high income but is a bit boring. a) (4) If she marries George, what will be their optimal choice of fertility and parental consumption? Illustrate their choice using the Value of Time diagram under our usual assumptions. b) (3) Still making our usual assumptions, show on the diagram you drew for part a) how the optimal choice of fertility and parental consumption would be different if she were to marry Sam. Would optimal fertility be higher or lower than with George (as in part a))? In addition to your diagram, please explain why in words. The red budget line and (n*, x*) represent the outcome if Elizabeth decided to marry George. Conversely, if she married Sam, the green budget line would apply and (n**, x**) would be the new optimum. Optimal fertility would be lower with Sam than with George. This situation is analogous to an income shift. There is no substitution (price) effect because prices/wages have not changed. Ronald Lee, March 11 2008. n** n* Number of children Parental Consumption x* x**
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Name: Student ID Number: c) (3) Now continue to suppose that she marries Sam, but drop the assumption that the mother is necessarily the one who spends time with the child. Within the framework of the value of time theory of fertility is their optimal fertility higher or lower than with that assumption as in part b)? Explain why in words and draw a diagram for the optimal fertility of Sam and Elizabeth under the usual assumptions as used in both parts (a) and (b) and also with the assumption that the mother is not necessarily the one who spends time with the child. There are two ways to interpret this question. The first interpretation could be that Sam and Elizabeth switch roles. = If Elizabeth works full-time, then her income is the fixed income I of the budget constraint. The green line above represents the original budget line with Sam’s fixed income I S and Elizabeth’s wage w E . The blue line represents the new budget line with Elizabeth’s fixed income and Sam’s wage w S . This new budget line must be shallower
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C175_Midterm_sp08_Answer_key - Name: Student ID Number:...

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