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Economics

Suppose there are 2 types of individuals:

a. "Type 1": PV of earnings with HS diploma :135.

PV of earnings without diploma:100.

b. "Type 2" : PV of earnings with diploma : 120.

PV of earnings without diploma : 100. The PV of the costs of a HS diploma is 22 for both types.

Question 2). a researcher sees only the following data:

Education level Average earnings

No HS diploma 100

HS diploma 135

Based on this , he concludes that a HS diploma raises earnings by 35(or a net of 35-22=13) on averages. Is this logic flawed? Why or Why not?

Question 3) Suppose the government thinks the average benefits of a HS diploma are 35, while the costs are only 22. They begin a program that pays a prize of 3 for all who get a HS diploma. Now which types will get a HS diploma? What is the benefit of the program for each type?

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