Question 1—Investment in Human Capital (6,000 character limit on all answers combined) Assume that there are two types of individuals in the population: Type A and Type B with the corresponding fractions f1 and f2. The levels of ability for the two types are: αA and αB, with αA > αB. Suppose also that Type A lives for TA years, while Type B lives for TB years. Briefly answer/evaluate FOUR out of the following six statements: A. If the financial resources available for a Type B individual are greater than those available for a Type A individual, it is possible that the former will invest more in his/her human capital. B. Suppose that human capital is not productive, which of the two types will get more investment in schooling? C. Suppose that the government provides all wages and sets all wages to be the same. How would that affect the incentives of the two groups to invest in human capital?
Question 1—Investment in Human Capital
(6,000 character limit on all answers combined)
Assume that there are two types of individuals in the population: Type A and Type B with
the corresponding fractions f1 and f2. The levels of ability for the two types are: αA and
αB, with αA > αB. Suppose also that Type A lives for TA years, while Type B lives for TB
years.
Briefly answer/evaluate FOUR out of the following six statements:
A. If the financial resources available for a Type B individual are greater than those available for a Type A individual, it is possible that the former will invest more in his/her
human capital.
B. Suppose that human capital is not productive, which of the two types will get more
investment in schooling?
C. Suppose that the government provides all wages and sets all wages to be the same.
How would that affect the incentives of the two groups to invest in human capital?
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D. If TB > TA then Type B will get more education, otherwise Type A will definitely get
more education. Discuss.
E. Assume that the mean wage in Industry 1 is greater than the mean wage in Industry 2,
but the variance of wages in Industry 1 is much larger than that in Industry 2. Assume
also that if you get an education you must work in Industry 1(i.e., the human capital
accumulated is industry specific). What effect(s) might that have on the choices of
Type A and Type B individuals regarding their education.
F. If αA is much larger than αB, then there is nothing the government can do to induce
Type B individuals to go to school beyond high school.
G. Discuss briefly how your answer to E change if the human capital was not entirely
industry specific
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