SIMON FRASER ECON290 Tut8 answer

SIMON FRASER ECON290 Tut8 answer - Economics 290: Canadian...

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Economics 290: Canadian Microeconomic Policy Tutorial #8 1. Government is considering the following two options to give childcare subsidies to poor parents: (1) write a check (cash subsidy), and (2) subsidize the hourly rate that a poor family pays for daycare (per-unit subsidy). (a) If both programs are equally costly to the government, which program is preferred by the poor families? Why? Low-income family prefers cash subsidy because childcare services become cheaper relative to other goods under per-unit subsidy program, recipients will increase the consumption for childcare services (distortionary substitution effect). Cash subsidy eliminates the distortionary substitution effects. (b) If both programs leave the poor parents equally as well off, which program is more costly to the government? Per-unit subsidy is more costly to the government. (c) How do taxpayers feel about these two programs? Do they prefer one over another? Taxpayers prefer cash subsidy program. Because there is no deadweight loss
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This note was uploaded on 04/15/2010 for the course ECON 290 taught by Professor J liu during the Spring '06 term at Simon Fraser.

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SIMON FRASER ECON290 Tut8 answer - Economics 290: Canadian...

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