Question

A Business School far-far away would like to build a new building. They need to get

enough funding for it, and the Dean argues that part of the money should come from

increased tuitions. The Board of the university disagrees, as you are a public school, and

you should keep the cost of education at an affordable level for every strata of society. The Dean argues that getting your Business degree is still a far superior investment than any financial asset. For this, he asks you to estimate the return on getting the degree, and present your findings to the Board of the University to support his argument with data.

1. What is your LHS variable and variable of interest on the RHS? (2 pts)

2. Think about the economic model. What are the determinants of (your future) wage?(Give me 5 factors at least for 5 pts)

3.You are expecting data on randomly selected individuals that includes their wage,

education level, gender and some more socio-economic characteristics. However, you are provided only with a limited number of variables for now. First, they give you wage (monthly, $), education level (years) and age (years) of the person, but they are nice enough to only give information about the group of people who work in business. Write down a standard linear model WITH ALL ITS ASSUMPTIONS for his particular application, using the variables given above. What factors are included in the unobservables according to your economic intuition (in b))? (10 pts)

4.Do you believe the exogeneity assumption of the linear model? Write down why (you do or do not believe it) in this particular example. (5 pts)

Please answer all questions fully

Answer 1

Hey hey econ student. Here I am providing you the answer of first two questions.

1. The LHS would include the dependent variable, i.e., the future income and the RHS would include the independent variables like the Business degree and other variables which will affect the dependent variable.

2. Determinants of future wage:

A. Educational qualification : the more a person is educationally qualified, the more he is likely earn better income.

B. Health : A good state of health increases work efficiency and improves your earning prospects

C. Economic conditions : an expansionary economic situation would boost the income while a recessionary economic situation would reduce the income.

D. Area of Work : Working at the Industrial and business hubs provides better opportunities of higher income, whereas working in some remote areas reduces income prospects.

E. Extra-Curricular Skills: These skills are important for developing the personality of any individual. A person possessing skills like communication skills, writing skills etc. have better chances of earning higher income as compared to those who lack these.