In a Labor-Market Separating Equilibrium with High-Skill and Low-Skill Workers

question 21

Multiple Choice

In a labor-market separating equilibrium with high-skill and low-skill workers and where a costly educational degree is used solely as a signal device,government can increase total social welfare by

• A) subsidizing school for low-skill workers.
• B) subsidizing school for all workers.
• C) eliminating schooling, i.e., banning wasteful signaling.
• D) subsidizing school for high-skill workers.

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Definitions:

Unit Elasticity

A situation in economics where a change in the price of a good or service results in a proportionally equal change in the quantity demanded or supplied.

Price Elasticity of Demand

A measure of the sensitivity of quantity demanded of a good to a change in its price.

Demand Curve

The graphical representation that illustrates the quantity of a particular good or service that consumers are willing and able to purchase at various price points.

Vertical Demand Curve

A vertical demand curve is a theoretical representation where the quantity demanded is completely insensitive to price changes, indicating that consumers are willing to buy the same amount regardless of the price.