QUESTION 1

i) Use a simple human capital model to explain the rationale for undertaking higher education

ii) Why do some people vary significantly in the amounts of human capital which they acquire?

iii) After graduating from high school, Mehvin is thinking about enrolling in a oneyear course in e-commerce. The direct costs of the course are $4,800. The potential salary that is forgone during a year amounts to $2,200. Upon completion of the course, he plans to work at Skynet Corporation for three years and then retire. The incremental income he anticipates because of his training is $3500, $4,000 and $4,500 for the three years he intends to work. The relevant interest rate is 10%. Is the decision to enroll in the data processing course rational? Discuss

QUESTION 2

i) How is the "pure" union wage advantage defined? If in a given labour market the wage rate would be $5 without a union and $7 with a union, then what is the pure union wage advantage?

ii) Briefly discuss the economic arguments for and against of trade unions

iii) Explain how, and in what direction, each of the following may cause the "measured" union wage advantage to vary from the pure advantage

1. the spillover effect
2. the treat effect
3. the product market effect
4. the superior-worker effect