Imagine a world populated by superior and inferior workers.A superior worker is worth $50 per hour to any employer, and an inferior worker is worth only $20 an hour.These people work for exactly 10 hours and then retire.Let s be the proportion of superior workers, and (1-s) the proportion of inferior workers. Assume that in the labour market equilibrium, workers are paid their expected worth.

a)Suppose no firm can distinguish superior from inferior workers.Write down the expression determining the common wage, and explain it.

Now suppose that a degree costs superior workers $200 and that it is simply impossible for an inferior worker to earn a degree.

b)Explain the conditions which must be satisfied if, in equilibrium, superior workers are willing to purchase a degree.

c)Why is the value of s critical?