This topic contains a solution. Click here to go to the answer

Author Question: Refer to Figure 4-6. What area represents consumer surplus at the equilibrium price of P1? A) D + ... (Read 140 times)

tth

  • Hero Member
  • *****
  • Posts: 579
Refer to Figure 4-6. What area represents consumer surplus at the equilibrium price of P1?
 
  A) D + E B) A C) A + B + C + D + E D) A + B + C

Question 2

Suppose some workers are capable and others are extraordinary. Firms are willing to pay capable workers a salary of 12,000 and extraordinary workers a salary of 15,000 .
 
  Workers know if they are capable or extraordinary but firms do not (that is, ability is private information). It would cost a capable person 6,000 to earn a college degree but it would cost an extraordinary person just 2,000 to earn a college degree since they can finish their education much faster. Show that in equilibrium in this labor market (i) extraordinary people go to college but capable people do not, and (ii) firms pay college graduates 15,000 and high school graduates 12,000 .



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

zoeyesther

  • Sr. Member
  • ****
  • Posts: 315
Answer to Question 1

D

Answer to Question 2

If an extraordinary person goes to college her salary would be 15,000, she would pay 2,000 for her education, and so she would be left with 15,000  2,000 = 13,000 . Since her salary would be just 12,000 if she did not go to college she is better off if she completes her education. If a capable person goes to college his salary would also be 15,000 but he would pay 6,000 for his education, and so he would be left with 15,000  6,000 = 9,000 . Since his salary would be 12,000 if he did not go to college, he would be worse off if he completes his education. Therefore, given these wages, only extraordinary people go to college. Firms know college graduates are extraordinary and high school graduates are capable and are willing to pay college graduates a salary of 15,000 .
You should see the similarities between this problem and Problem 4 . Some workers and some cars are peaches and some are lemons. A college degree in this problem plays the same role as the certificate in the used car market problem.




tth

  • Member
  • Posts: 579
Reply 2 on: Jun 29, 2018
YES! Correct, THANKS for helping me on my review


ktidd

  • Member
  • Posts: 319
Reply 3 on: Yesterday
Gracias!

 

Did you know?

Glaucoma is a leading cause of blindness. As of yet, there is no cure. Everyone is at risk, and there may be no warning signs. It is six to eight times more common in African Americans than in whites. The best and most effective way to detect glaucoma is to receive a dilated eye examination.

Did you know?

Though Candida and Aspergillus species are the most common fungal pathogens causing invasive fungal disease in the immunocompromised, infections due to previously uncommon hyaline and dematiaceous filamentous fungi are occurring more often today. Rare fungal infections, once accurately diagnosed, may require surgical debridement, immunotherapy, and newer antifungals used singly or in combination with older antifungals, on a case-by-case basis.

Did you know?

The training of an anesthesiologist typically requires four years of college, 4 years of medical school, 1 year of internship, and 3 years of residency.

Did you know?

The cure for trichomoniasis is easy as long as the patient does not drink alcoholic beverages for 24 hours. Just a single dose of medication is needed to rid the body of the disease. However, without proper precautions, an individual may contract the disease repeatedly. In fact, most people develop trichomoniasis again within three months of their last treatment.

Did you know?

Women are two-thirds more likely than men to develop irritable bowel syndrome. This may be attributable to hormonal changes related to their menstrual cycles.

For a complete list of videos, visit our video library