1. George is choosing a career: marine biologist or an architect. He lives 2 periods. In the first, he gets an education and in the second, he works. If George becomes a marine biologist he will spend $25000 on education in the first period and earn $482000 in the second period. As an architect, he has to spend $40000 on education in the first period and then earn $510000 in the second period. The interest rate at which he can lend and borrow money between the two periods is 5%.
(a) Which career does George choose?
(b) What if he can borrow and lend money at 15% rate of interest? Does he choose a different option?
(c) Explain what the higher interest rate means for the decision. (The intuition, not just the option
(d) Suppose the tuition for architecture is raise and it costs $60, 000 to become an architect. What career will George pursue at the 5% interest rate?
2.As we did in the class, suppose that the demand for women workers depends on the relative female/male wage wF/wM in this way:
wF/wM= 1.1 - 0.0001EF if EF <1000
wF/wM= 1 if 1001wF/wM= 1.5 - 0.0001EF if EF > 5001
where EF is the number of female workers employed.
(a) Graph this demand curve.
(b) Calculate the relative wage of women when EF is 200, 2000, and 7000.
(c) When is discrimination harmful to women in this market?
3. There are 2 types of workers in the economy: 40% are high skilled and and 60% are low skilled. High skilled workers have marginal productivity of $50 and their cost of acquiring education is $S/5. Low skilled workers have marginal productivity of $20 and cost of education $S/2. Firms pay workers their marginal product, but cannot observe whether a worker is high or low skilled.
(a) If workers choose to acquire education and firms wish to distinguish between workers, what is the reference level of education at which the firms chose to pay a wage of $50?
(b) What is the equilibrium outcome in this labor market?
(c) Now, if all the workers are uneducated, what wage will the firms offer?
4. This question asks you to work with the basic labor S&D model with immigrants. Domestic demand for labor is L=36-2w with w indicating the wage and L number of employees that can be hired at a given wage.The supply of native workers is given by L=9+w and the total number of workers who would want to work in this economy is L=10+2w
(a) Calculate the values in the following table and graph the curves for demand, total supply, domestic supply and immigrant supply.
(b) What are the equilibrium wage and employment before immigration?
(c) What are the equilibrium wage and employment after immigration?
(d) How many domestic workers will be hired?
(e) How many immigrants will be hired?