Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Economics (25] Elsa and Anna are two students each considering whether to pursue a college education before altering the job market. For each worker, an

image text in transcribed
Economics (25] Elsa and Anna are two students each considering whether to pursue a college education before altering the job market. For each worker, an education level of E = 1 indicates that she has completed college and earned a degree, while E = [l indicates she has not. Elsa can generate FE = 36 1worth of output per hour while Anna can only produce 1"" = 12 per hour. Obtaining a degree is costly, and the students must pay for their educations by taking out student loans that will be repaid during their working years. Elsa is a naturally capable student so the degree costs her the equivalent of CE = 18 per hour in future wages, whereas Anna struggles with her studies and must pay Cs = 2? per hour. Note that their education levels do not impact their productivity. Hans is an employer who cannot observe the workersI innate abilities, but can observe their education levels. The labor market is competitive, so that Hans must always oEer a wage equal to his reservation price, and thus makes zero prot. {a} (5} Suppose that Hans offers the same wage W to all workers, regardless of whether they attended college or not. 1What education levels do Elsa and Anna choose? 1FWhat wage does Hans offer? [h] (5} Now suppose that Harts decides to offer higher wages to workers with college degrees W] than to those without Wu. What (education levels must he expect Elsa and Anna to choose in order to justir this'."I 1What wages does Hans otter? {c} (5} Show that both Elsa and Anna have an incentive to choose the education levels that match Hans\" expectations. [d] {5} Now suppose that the costs of a college education fall, so that now CE = 14 for Elsa and 0'1 = 21 for Anna. 1illicit education levels do they choose now, and what wages does Hans oHer? {e} {5} In this model, how dom reducing the cost of education affect how well educated people are overall

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Economics The Basics

Authors: Michael Mandel

2nd Edition

0073523186, 9780073523187

More Books

Students also viewed these Economics questions

Question

2. Value-oriented information and

Answered: 1 week ago

Question

1. Empirical or factual information,

Answered: 1 week ago

Question

1. To take in the necessary information,

Answered: 1 week ago