Suppose the market for in-home child-care service (\"baby sitting\") in East Lan

Question

Suppose the market for in-home child-care service ("baby sitting") in East Lansing is shown in below. Child-care service suppliers arc 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. 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 an increase in the price of child care and a corresponding increase in the number of students supplying the service. a reduction in the price of child care because of an increase in supply a surplus of workers resulting from decreased demand for the service no effect 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 The opportunity costs to students of working as baby-sitters increase. The supply of baby-sitting services in East Lansing decreases. Fewer students will be willing to give up time to baby-sit at any price. All of the above.

Explanation / Answer

1i. The correct answer is option B: A reduction in the price of Child care because of an increase in supply.

Since the MSU increases the student intake, this will result in increased part timers and hence will lead to an increased supply.

1ii. The correct answer is optionD: All of the above.

Since the university tightens the syllabus, the students will have no time to think about the part time. They will be concentrating on their studies. Hence this will lead to a decrease in supply of baby sitters and even if students come forward there will only be a few students who might be willing to work. The opportunity costs of baby sitting will definitely increase.

1iii. The correct answer is option B: The price for Child care in East Lancing increases.

Since the minimum wages is set by the government, the households will be forced to pay these wages and hence the price of child care in East Lancing will increase.

1iv. The correct answer is option D: All of the above

When the government promoted subsidy, it means that it will pay an additional amount of $3 per child per hour, so this will cause an increase in the total amount of money paid to child care workers, This might also cause the families to pay less and the Child Care workers might sometimes earn more.

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