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# relation between the years of schooling and the annual earnings

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2. Andre's wage-schooling locus can be described by the following table

Years of Schooling Annual Earnings
11 22,000
12 30,000
13 35,000
14 38,000
15 40,000
16 41,000
17 41,500
18 41,700

(a) Depict the wage-schooling locus on a graph.
(b) Derive the marginal rate of return to schooling curve. Depict on a graph as completely as possible.
(c) Would this person finish the 12th grade if their discount rate was 15%? Explain.
(d) Would this person finish the 16th grade if their discount rate was 3%? Explain.
(e) How would either decision change if the government imposed a 20% tax on earnings and interest income?
(f) What would happen if the government exempted interest income?

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This job depicts and infers the relation between the years of schooling and the annual earnings.

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## Monetary Terms to the Relationship

Kevin has found the woman of his dreams and will marry soon. He has a bright financial future and quite impressed with what he will bring in monetary terms to the relationship. He's presently gainfully employed and expects that his earnings power will increase substantially after he gains more work experience and completes business school.

Kevin's fiancé is an aspiring socialite. She hopes to maintain her youthful looks for a steady schedule of social events, so tries to avoid stress at all costs. That means she intends to quit her job after they marry, and avoid the rigors of child-rearing and housework. She comes from a very wealthy family.

Knowing that he will be the sole breadwinner of the household, Kevin thinks a dowry is in order. Oddly, neither his fiancé nor her father objects. His future father-in -law is agreeable to the idea of a dowry that approximates the present value of Kevin's likely career earnings. Using the assumptions below, how much should he request?

Assumptions:
Age: 25
No debt of financial assets
Retirement Age: 65
Years 1,2,3: Earnings = \$60,000
Years 4,5: Full time business school costing \$50,000 each year
Starting salary after graduate school: \$120,000
Years 7-10: 5% annual earnings growth
Years 11-20: 10% annual earnings growth
Years 21-40: 3% annual earnings growth

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