ProblemSet6 - Economics 3203 Fall 2010 Problem Set 6 Human...

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Economics 3203 Fall 2010 Problem Set # 6: Human Capital Due Monday, November 1 (in class) 1. At a certain university the number of students wishing to attend substantially exceeds the available number of places. The most important criteria used to allocate places are money (high tuition fees) and intellectual ability (high-school records, admission test scores). A philanthropist offers an annual gift to the university that will equal total annual tuition revenue, if the university agrees to eliminate money as a criterion for admission (i.e. the philanthropist offers to pay for all students’ educations). Assume that, at a tuition price of zero, 100,000 students would apply for 1,300 places. The university then considers three schemes for admitting students (assume that admission rights cannot be sold): a. Admission based strictly on test scores; b. Admission based on a lottery; c. Potential students must form a line in front of the Admissions Office. At 9:00 a.m. on April l, each year, the first 1,300 students are admitted.
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