Suppose a hypothetical economy has a larger number of workers (N>1000). Each worker has to decide whether to acquire education and become a high-skilled worker or remain low-skilled. Education carries a cost of C. Assume that interest-free education loans are available to everybody. Let I and IT denote the income earned by a high- and low-skilled worker respectively. These incomes are defined as I = (1+0)H and I₁ = (1+0)L, where H and L are constants and 0 is the fraction of the population that decides to become high skilled. This formulation captures the idea that a person's productivity is positively linked not only to his/her own skills, but also to that of his/her fellow workers. Assume that all individuals simultaneously choose whether or not to become skilled. Which of the following statements is incorrect? Ⓒa. Suppose H = 5, L= 2, and C=4, there is an equilibrium in which everybody acquires skills. b. Suppose H = 5, L= 2, and C=4, there is an equilibrium in which nobody acquires skills. ⒸC. Suppose H = 50, L= 20, and C=35, there is an equilibrium in which everybody acquires skills. Suppose H = 50, L= 20, and C=35, there is an equilibrium in which nobody acquires skills. Ⓒe. Suppose H = 24, L= 20, and C=30, there is an equilibrium in which everybody acquires skills. Ⓒf. Suppose H = 44, L= 20, and C=30, there is an equilibrium in which nobody acquires skills.
Suppose a hypothetical economy has a larger number of workers (N>1000). Each worker has to decide whether to acquire education and become a high-skilled worker or remain low-skilled. Education carries a cost of C. Assume that interest-free education loans are available to everybody. Let I and IT denote the income earned by a high- and low-skilled worker respectively. These incomes are defined as I = (1+0)H and I₁ = (1+0)L, where H and L are constants and 0 is the fraction of the population that decides to become high skilled. This formulation captures the idea that a person's productivity is positively linked not only to his/her own skills, but also to that of his/her fellow workers. Assume that all individuals simultaneously choose whether or not to become skilled. Which of the following statements is incorrect? Ⓒa. Suppose H = 5, L= 2, and C=4, there is an equilibrium in which everybody acquires skills. b. Suppose H = 5, L= 2, and C=4, there is an equilibrium in which nobody acquires skills. ⒸC. Suppose H = 50, L= 20, and C=35, there is an equilibrium in which everybody acquires skills. Suppose H = 50, L= 20, and C=35, there is an equilibrium in which nobody acquires skills. Ⓒe. Suppose H = 24, L= 20, and C=30, there is an equilibrium in which everybody acquires skills. Ⓒf. Suppose H = 44, L= 20, and C=30, there is an equilibrium in which nobody acquires skills.
Chapter17: Income, Poverty, And Health Care
Section: Chapter Questions
Problem 1P
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Transcribed Image Text:Suppose a hypothetical economy has a larger number of workers (N>1000). Each worker has to
decide whether to acquire education and become a high-skilled worker or remain low-skilled.
Education carries a cost of C. Assume that interest-free education loans are available to everybody. Let
Iy and I, denote the income earned by a high- and low-skilled worker respectively. These incomes
are defined as I, = (1+0)H and I, = (1+0)L , where H and L are constants and 0 is the fraction of the
population that decides to become high skilled. This formulation captures the idea that a person's
productivity is positively linked not only to his/her own skills, but also to that of his/her fellow
workers. Assume that all individuals simultaneously choose whether or not to become skilled. Which
of the following statements is incorrect?
O a. Suppose H = 5, L= 2, and C=4, there is an equilibrium in which everybody acquires skills.
Suppose H = 5, L= 2, and C=4, there is an equilibrium in which nobody acquires skills.
OC. Suppose H = 50, L= 20, and C=35, there is an equilibrium in which everybody acquires skills.
d. Suppose H = 50, L= 20, and C=35, there is an equilibrium in which nobody acquires skills.
e.
Suppose H = 24, L= 20, and C=30, there is an equilibrium in which everybody acquires skills.
Of. Suppose H = 44, L= 20, and C=30, there is an equilibrium in which nobody acquires skills.
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