Question 1

Why do mainly young people attend college?

Accepted Answer

Younger people have a longer time horizon to reap the benefits of a college education, which includes higher earning potential and better employment opportunities. This higher return justifies the higher upfront cost of tuition.

Question 2

Suppose there are two workers: individual A goes to college and individual B does not.What does this imply?

Accepted Answer

Individual A's decision to invest in college implies that they believe the marginal return to schooling (the additional benefits from obtaining a higher level of education) is higher than the marginal cost of attending college (including tuition, living expenses, and lost wages from not working during that time). Therefore, individual A faces a higher marginal return to schooling compared to individual B who chose not to attend college.

Question 3

Suppose there is another worker in the economy,whose schooling and earnings are governed by w = 6.3 ln (1 + s).This worker will accumulate years of school and is of ability. Hint: in this case,MW(s)= 6.3/(1 + s)

Accepted Answer

The worker will accumulate more years of schooling if they have higher ability, as higher ability increases the marginal benefit of schooling.

Question 4

What is the individual's optimal level of schooling?

Accepted Answer

The optimal level of schooling varies based on the individual's goals and desired career path. However, studies have shown that on average, individuals with a bachelor's degree (which typically takes four years to complete) have higher earnings, lower unemployment rates, and better overall job prospects than those with only a high school diploma or some college education. Therefore, four years of college education is likely the best choice for most individuals.

Question 5

Which of the following would cause Brian to be willing to pay more to go to college?

Accepted Answer

A decrease in discount rate means that Brian values future benefits (such as higher future wages) more than present benefits. Therefore, he would be willing to pay more to attend college in order to secure a higher wage after graduation.

Question 6

Suppose at any given time 7 of 16 workers are unemployed.What is the unemployment rate?

Accepted Answer

The unemployment rate is calculated as the number of unemployed individuals divided by the total labor force (which includes both employed and unemployed individuals). In this case, the number of unemployed individuals is 7 and the total labor force is 16, so the unemployment rate is 7/16 = 0.44 or 44%. Therefore, the correct answer is C.

Question 7

What will be the (approximate)optimal level of schooling if the discount rate increases to r = 3.0?

Accepted Answer

When the discount rate increases, the present value of future earnings decreases, making it less attractive to invest in additional years of schooling. Therefore, the optimal level of schooling would be lower, approximately 1 year.

Question 8

Human capital includes all of the following except

Accepted Answer

Purchasing a new computer is an example of physical capital, not human capital. Human capital refers to knowledge, skills, and abilities that individuals possess and can use to produce economic value.

Question 9

An individual will choose the optimal amount of schooling so that the return to an additional year of school equals:

Accepted Answer

The optimal amount of schooling is chosen when the return to an additional year of school equals both the marginal cost of an additional year of schooling (B) and the expected return from investing the money elsewhere, such as in a bank (D). This ensures that the individual is making an economically rational decision by comparing the benefits of further education to its costs and to alternative investments.

Question 10

Sharon will invest in another year of school if one more year of school costs

Accepted Answer

The answer of Sharon will invest in another year of...

Question 11

How many years of schooling will Matt acquire?

Accepted Answer

The answer of How many years of schooling will Matt...

Question 12

Which of the following does not help develop human capital?

Accepted Answer

Purchasing another computer does not directly involve developing human skills or knowledge. It may improve productivity, but it does not contribute to the development of human capital. The other options involve education, training, and knowledge acquisition, which are all essential for developing human capital.

Question 13

If capital markets are imperfect,high borrowing costs the acquisition of human capital but the rate of return.

Accepted Answer

When capital markets are imperfect, borrowing costs are high which will discourage the acquisition of human capital. However, the rate of return on investment in human capital may increase because the available human capital becomes more scarce due to the high borrowing costs. Therefore, the option that fits this situation is "discourage, increase".

Question 14

Suppose a worker's earnings are governed by w = 8· ln (1 + s)and r = 0.5.Given the unemployment rate with 7 of 16 workers unemployed,what is the optimal level of schooling?

Accepted Answer

The answer of Suppose a worker's earnings are governed by...

Question 15

How many years of schooling does Carolina acquire?

Accepted Answer

The answer of How many years of schooling does Carolina...

Question 16

The future earnings of an individual at a rate.

Accepted Answer

The answer of The future earnings of an individual at...

Question 17

Which of the following would cause Brian to not be willing to pay as much to go to college?

Accepted Answer

If Brian's wage at the retail store increases to $10K, the opportunity cost of attending college increases, making him less willing to pay as much for college.

Question 18

What is Brian's reservation schooling cost?

Accepted Answer

The answer of What is Brian's reservation schooling cost?
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Question 19

If capital markets are ,then higher educational investment by an individual's parents will the optimal level of schooling.

Accepted Answer

The answer of If capital markets are ,then higher educational...

Question 20

What is the marginal benefit of the investment for Sharon?

Accepted Answer

The answer of What is the marginal benefit of the...

Quiz 5: Human Capital