Prof. Bryan Caplan

bcaplan@gmu.edu

http://www.gmu.edu/departments/economics/bcaplan

Econ 321

Fall, 2000

 

I.                     What happens to the price of slaves when...?  Graph your answer.

A.                 Interest rates fall.

B.                 The cost of food falls.

C.                Someone develops a new alarm that quickly alerts owners about escape attempts.

D.                The government passes a law requiring owners to provide extra care for elderly slaves.

II.                   Using two diagrams per question, show what happens to slaves and free laborers when:

A.                 Worker productivity rises (and product demand is relatively elastic).

B.                 The government imposes a minimum wage.

C.                Work becomes more boring.

D.                New worker safety devices reduce the likelihood of severe injury.

III.                  Carefully contrast TWO reasons why slave-owners might pay slaves more than a subsistence wage. (1 paragraph)

IV.               Suppose interest rates rise.  What does human capital theory predict about college attendance?  Wages for Ph.D.s?  Use two diagrams - one for the S&D of education, the other for the S&D for workers with Ph.D.s?

V.                 Suppose a magic drug makes people immortal.  What happens to the average level of education?  Why?  (2-3 sentences)

VI.               Calculate your PDV of going to college, using your best guesses for your income if you do and don't go to college. (To save time, just do your calculations for 15 years after high school graduation). Assume the interest rate is 5%. Does college attendance have a positive PDV?

VII.              Using your answer to VI, guess what the interest rate would have to be to reverse your answer. (You're guess doesn't need to be right, but it must go in the right direction). Then calculate the PDV using the new interest rate. Was your guess too high? Too low?

VIII.            Carefully explain ONE reason why a 12.6% rate of return on education is an overestimate.  (1 paragraph)

IX.               Why does controlling for IQ reduce the estimated rate of return to education?  (1 paragraph)

X.                 How would you expect controlling for Conscientiousness to change the estimate rate of return to education? (2-3 sentences)