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Define internal rate of return from human capital investment

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Floyd is now working on a job that pays $28,000 per year.

He is contemplating a 1-year automobile mechanics course that entails costs of $1,000 for books and tuition. Floyd estimates that the course will increase his income to $33,000 in each of the 3 years following completion of the course. At the end of those 3 years, Floyd plans to retire to a commune. The current rate of interest is 10 percent. Is it economically rational for Floyd to enroll in the course?

Suppose the net present value of an educational investment is highly positive. What can you infer about the investment's internal rate of return relative to interest cost of borrowing?

Define internal rate of return from human capital investment.

a) Why is the internal rate of return subject to diminishing returns?

b) Explain why the "diminishing rate of return to education" curve can be identified as the "demand for human capital curve".

c) Use the demand and supply curves for human capital to explain why various individuals find it rational to invest in different amounts of human capital.

d) Do you think the education system in Australia contributes to more or less equality of the distribution of earnings?

Reference no: EM132617469

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