Suppose that the salary range for recent college graduates with a bachelor's degree in economics is $30,000 to $50,000, with 25 percent of jobs offering $30,000 per year, 50 percent offering $40,000 per year and 25 percent offering $50,000 per year and that in all other respects, the jobs are equally satisfying. Assume that in this market, a job offer remains open for only a short time so that continuing to search requires an applicant to reject any current job offer. Who will accept an offer of $30,000?
A)Graduates who have been searching the longest
B)Graduates who enjoy taking risks
C)Graduates who are either risk-neutral or risk-averse
D)Graduates who are risk-averse

Question

Quizplus · Accepted Answer

The expected starting salary for a college graduate with a bachelor's degree in economics is $40,000 = (0.25)($30,000)+ (0.50)($40,000)+ (0.25)($50,000). Thus, if someone has a job offer for $30,000, then the expected value of searching for another job is $10,000. Thus, the only people who will not accept this gamble are those that are sufficiently risk-averse.

Suppose That the Salary Range for Recent College Graduates with a Bachelor's