In a fertility model where children are treated as consumption goods, suppose price of children falls,...

In a fertility model where children are treated as consumption goods, suppose price of children falls, but income also falls, then

Select one:

a. People will have more children.

b. People will have fewer children.

c. There will will be no change in fertility.

d. it is uncertain whether fertility will rise or fall.

The answer is not B) People will have fewer children

Solutions

Expert Solution

The answer is: D). it is uncertain whether fertility will rise or fall.
If the price of any normal good falls, you want to have more of it, so you want more children if child price drops. You want to have less of everything if your income falls. So you want to have fewer children from this perspective. The effects work in opposite directions. The final effect depends on whether the price effect or the income effect is stronger.

Rahul Sunny answered 1 year ago

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