Suppose the household utility function for consumption goods and children is given as follows,

? = ??

1

???

?????, ?? = ?????? ?? ???????? ??? ?? = ??????????? ?????

0

t = preference for having less children. If 't' is high, household demands less children.

The price of consumption goods (Cx) = $200 and the price of raising children (Cd) is $250. The

total household income is $1000. Therefore, the budget constraint is,

250?? + 200?? = 1000

a) Show that the optimal number of children the household prefers to have is approximately three

(rounding off). Take the value of t as 0.5

b) How will the fertility decision of the household change if the price of raising children increases

to $300? (Write in words, no need to calculate).

c) Suppose the wife of the household head gets employment and contributes to the household

income. Which parameters in the model above will be affected due to this change? How do you

think it will change the optimal fertility decision of the household? (Explain your answer in

words).

Suppose the household utility function for consumption goods and children is given as follows, U = CCx where, Ca = Number of children and Cy = consumption goods t = preference for having less children. If 't' is high, household demands less children. The price of consumption goods (C,) = $200 and the price of raising children (Cq) is $250. The total household income is $1000. Therefore, the budget constraint is, 250Ca + 200Cx = 1000 a) Show that the optimal number of children the household prefers to have is approximately three (rounding off). Take the value of t as 0.5 b) How will the fertility decision of the household change if the price of raising children increases to $300? (Write in words, no need to calculate). c) Suppose the wife of the household head gets employment and contributes to the household income. Which parameters in the model above will be affected due to this change? How do you think it will change the optimal fertility decision of the household? (Explain your answer in words)