Assume that spending more on the education of a student increases his or her productivity. Draw the relationship between productivity/wages (assuming that wages increase in tandem with productivity and that there are diminishing returns).
Assume that more able students have, for each level of education, a higher level of productivity.
a. Assume that one wanted to maximize total output for a given level of expenditure. How would you allocate educational expenditures? Would you necessarily spend more on the more able students?
b. Assume that you wanted to reduce inequalities in income. How would this affect patterns of educational expenditure?