1. In the context of investments in human capital, perfect capital markets imply
ID: 1126973 • Letter: 1
Question
1. In the context of investments in human capital, perfect capital markets imply all of the following, except that:
a. An individual weighs the costs against the benefits based on certain ways of calcuating them.
b. An individual can base his/her human capital decision on total lifetime income.
c. An individual faces no liquidity constraints as they can borrow against expected future income.
d. An individual makes an investment decision based on his/her current income.
2. The decision to invest in human capital does not involve which of the following?
a. The costs of tuition and books
b. Forgone earnings
c. Projected earnings
d. None of the choices are correct.
3. The rule for optimal human capital investment is that:
a. the individual should increase years of education until the discounted present value of the benefits of an additional year of education equals the discounted present value of the additional costs.
b. the individual should increase years of education until the discounted present value of the benefits of an additional year of education is less than the discounted present value of the additional costs.
c. the individual should increase years of education until the discounted present value of the benefits of an additional year of education is greater than the discounted present value of the additional costs.
d. the individual should increase years of education until the discounted present value of the benefits of all of the years of education equals the discounted present value of all of the associated costs.
Explanation / Answer
1. The correct answer is: D)
Reason: while making investment in human capital, an individual rather makes his decision based on lifetime income and not only on his/her current income.
2. The correct answer is: D)
Reason: All the first three options are to be considered while making decisions to invest in human capital. Thus, D is the correct alternative here.
3. The correct answer is: A)
Reason: Economic theory suggests that at Equilibrium, marginal gain must be equal to the Marginal loss. Thus, the marginal gain from an additional unit of education must be equal to the marginal loss I.e.cost of an additional unit of education at Equilibrium.
Thanks!
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.