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Problem scenario

Empirical evidence suggests that individuals who invest n higher education benefit from a substantial 'education premium', i.e. their future salaries are on average higher than those of individuals with only a high school diploma.

(a) What are the costs of higher education? What method would you use to assign a monetary value to a university degree? Examples using fictitious data are welcome.

(b) Suppose that you wanted to test the relationship between interest rates and the number of new postgraduate masters students in a particular year - what type of relationship would you expect?

(c) 'To some extent, the returns to human capital are random...getting an MBA gives you a shot at being a CEO, but it isn't a guarantee' (G. Mankiw). Based on this, what adjustment should you make in order to take into account this comment when assessing the value of a university degree?

Solution Preview

a) The cost of higher education includes the actually cost (tuition, books and cost of buying paper notebook etc), as well as the cost of your time. For example,

If university education costs $5000/yr and you need $1000/yr on books and school supplies, then your direct cost would be $6000.

Now, let's say that if you didn't go to university, you could work somewhere for $20,000/yr. Then by attending school, you have given up the time to work, so your indirect cost is $20,000. You total cost of education ...

Solution Summary

Problem scenario are provided. The relationship between interest rates and the number of new postgraduate masters students in a particular year is examined.

$2.19