fin_practice_ans - Simon Fraser University Department of...

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Simon Fraser University Prof. Karaivanov Department of Economics Econ 355, Fall 2010 Answer Key to the fi nal exam practice questions NOTE: these are not complete answers but just pointers in the right direction. Read the corresponding sections from the notes/textbook for more details. I. TRUE/FALSE (answer in 5 lines or less; correct answers without justi fi cation will receive zero credit) 1. The share of rural population in the world in 2010 exceeds 50% of the total world popu- lation. FALSE: the data presented in class showed that the share of world’s urban population has exceeded 50% in recent years. 2. In the Harris—Todaro model rural-urban migration would not occur if there is substantial urban unemployment. FALSE: one of the main achievements of the Harris-Todaro model is to explain the fact that rural-urban migration can co-exist with urban unemployment. The reason is that as long as the expected (adjusted for probability of not fi nding a job in the city) urban income exceeds the rural income people will still migrate. Whether further migration will occur or not depends on the rate of urban unemployment (which a ff ects the expected urban income) but if rural incomes are very low, migration can still occur even in the presence of substantial urban unemployment. See the lecture notes or textbook for more details. 3. The social rate of return to education typically exceeds the private rate of return to education. FALSE/IT DEPENDS The data presented in class has shown that the answer depends on the level of education in question; whether this level of education is heavily subsidized or not or whether there exist positive externalities from more people having this education level. The private return is the expected future net gains in income an individual will make from attaining a particular education level. The social return instead is the bene fi t to cost ratio for society for providing a particular education level to people. In the data presented in class, for some countries, the private returns for university education could exceed the social returns while the opposite is likely true for primary education. 4. Child labor is unambiguously bad and should be banned in all circumstances. FALSE: there could be circumstances (see the textbook or notes for details and examples) in which child labor could be necessary for the survival of very poor households — e.g. such where the adults are not able to provide enough income for subsistence. Thus, banning child labor outright, without providing an alternative for these families will only drive child labor into the grey/ informal economy where children are even more likely to be put in bad working conditions, miss school, etc.
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