Question

True/false/ambiguous. For each of the following, indicate whether the statement is true, false, or ambiguous, and briefly explain your answer. If your answer depends on any assumptions, state them clearly. Use graphs or equations to illustrate your answer whenever it is helpful

6. In contrast to the standard labor demand model, employers may sometimes choose to pay a wage higher than the market wage in order to maximize profits.

7. If the signaling model of schooling is true, then schooling is not as good an investment as the human capital model implies.

8. If going to college for 4 years would increase a person’s earnings compared to going to work right after high school, then the optimal economic decision is to go to college.

9. According to the human capital model, schooling becomes a less important determinant of earnings the more years of experience one has in the labor market.

10. If the signaling model of schooling is correct, then you and your parents are wasting money by paying for college.

Answer 1

6. True. Paying wage higher than the market wage may sometimes give the employees an incentive to stay with the company & increase their efficiency on the assumption that the employees can easily get better opportunities elsewhere.

7. True. Schooling signals the person's ability to learn. The person may not have the relevant skills required for the job.

8. Ambiguous. It may be true if the person's wage can be more than the opportunity cost of attending college for 4 years or the person's acquired skills can give him good long term earning opportunities.

9. True. A person's acquired skills through experience will be more beneficial for the employer.

10. False.