Economics of Education Problem Set 11. When economists discuss education markets, what do they mean? How do education marketsdiffer from other types of markets like the market for cars or shoes?2. Question #2 is an analysis of consumer behavior with respect to education using budgetconstraints and indifference curves.a. Draw the budget line between education and all other goods facing a consumer.Assume that public education is some standardized amount and that the alternative,private education, can be purchased in varying amounts. (Hint: The budget constrainthere is not only a line but also a point outside the line.)b. Draw an indifference curve that would imply the consumer would not accept the offerof free public education. In other words, draw an indifference curve such that a point onthe ordinary, market budget line is on a higher indifference curve than is the point forthe standardized amount of public education.c. Draw an indifference curve implying the consumer would accept the free publiceducation and would consume more education than he would without the offer.d.Draw an indifference curve implying the consumer would accept free public educationbut would consume less education than he would without the offer.e.When would you expect an offer of free public education to reduce rather than raise theeducational attainment of the population?3. What is selection? Why does selection make it difficult to estimate the causal effect ofeducation policies? Discuss how randomized controlled trials overcome issues related toselection.4. Use human capital theory to explain why investments in education tend to occur at youngerages.5. Bill is a history teacher who earns $50,000 each year, Kevin is unemployed. Bill and Kevin wantto go earn an MBA degree and later open their own business. Each would pay the same tuitionfor their MBA. Do they both face the same cost of enrolling in the program? Explain.6. A study shows that for American high school dropouts, obtaining a General Equivalency Degree(GED) by part-time study after high school has very little pay-off. It also shows, however, that forimmigrants who did not complete high school in their native countries, obtaining a GED has arelatively large payoff. Can signaling theory be used to explain these results?7. Suppose there are two types of employees: high productivity (H) and low productivity (L).Employers cannot distinguish between the two types during the job interview (i.e. it's difficult totell who is actually productive or not by just talking with them). Assume that:a. The employer values getting a high productivity worker at $20; they value a lowproductivity worker at $10.b. That education costs 2y for a high productivity worker and 2.5y for a low productivityworker, where y represents years of schooling.c. That high-productivity workers make up 25% of the populationWhat is the pooling equilibrium wage?What values of y will lead to a separating equilibrium?Show Transcribed Textplease help for questions 1-7

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Economics of Education Problem Set 1 1. When economists discuss education markets, what do they mean? How do education markets differ from other types of markets like the market for cars or shoes?