Posted: February 4th, 2015

PS 1 – ECON 4350; Economics;

PS 1 – ECON 4350; Economics;

1. Using the data I’ve provided (ps1.xlsx):
(a) Plot mean income by age for each education level on the same graph (use connected scatter
plots or line plots for all graphs).
(b) Now plot median income by age for each education level.
(c) At what age is the difference in mean earnings between those with a HS diploma and those
with a BA or more the largest? What is the difference (value) at that age? Show (plot)
these differences by age as well.
(d) Now plot the difference (BA or more – HS graduates) in both mean and median earnings
at each age (for ages 19-65) on the same graph. Is the benefit of college higher when we
compare means or medians? Why?
(e) If we sum up the difference in mean earnings between College graduates and HS graduates
over ages 19-65, how much more will college graduates earn in total?
(f) What is the present value of this difference in stream of payments at a discount rate of
4%? [Note: You should solve this in excel, not by hand. You only have to put the value
for the answer.]
(g) T/F/U: Taking into account that this data is a cross-section (i.e. a snapshot of Americans
taken today) as opposed to a panel (which follows people over time), do you think question
(f) above a good way to project how much more a college graduate who is 19 today will
earn over her lifetime than a HS graduate who is 19 today? Say why or why not.
Q1 Notes: Include all figures in your answer-set. Make sure all graphs have titles (question
number and a description of what I see this is good practice). Make sure all axes are labeled
and readable as is the legend. You can use whatever stat program you want to do this (Excel,
R, Stata, SAS, SPSS, Matlab,). T/F/U is true, false or uncertain. You have to provide a
justification for your answer.
2. Let’s say Sam just finished high school and is deciding whether to enroll in a two year nursing
program at the local community college. The cost of the program is $10,000 per year for tuition
and supplies. Because the program is so intensive, Sam cannot work if he enrolls in the program
until after he graduates.
Sam believes if he doesn’t enroll in the program, he’ll earn $60,000 per year. He believes that
if he completes the program, he’ll earn $110,000 per year once he starts working. Because of
visa issues, Sam is only allowed to stay in the country for 5 years (he will not work when he
returns to his home country). Show your work.
(a) Set up what Sam’s net present value calculation should include.
(b) At an interest rate of 3% (r=0.03), would you suggest that Sam enrolls in the program?
(c) At an interest rate of 2%, would you suggest that Sam enrolls in the program?
(d) What if Sam’s visa allowed him to stay for an extra year at the original 3% interest rate?
Directions:
You are responsible for handing in your own problem set at the beginning of class. Your grade will
be deducted for every day it’s late. If not in class, you must drop it in my mailbox at the Andrew
Young School (5th floor).
Please type up your answers. An exception to this is the Q2.a (although getting familiar with
how to typeset equations is useful).
You may consult with others in working on the problems, but you should not have the exact
same answers. For clarification or help understanding, ask your classmates, do not email me (office
hours are Wed.).
If you have questions about the problem set, you can email Peyman, your TA, at
[email protected]. Do not email him just because you’re confused, only email him if
you think one of the problems cannot be solved (i.e. there is a mistake in the question).
Good luck.
Page 2

Mean and median earnings from employment by age
No HS        HS degree        Some college        BA or higher
Age group    Mean    Median    Mean    Median    Mean    Median    Mean    Median
19    3991    0    5742    2541    4137    2033    10213    3000
20    6303    1225    8819    5103    6261    3545    12225    5082
21    7651    2836    10766    7623    8191    5001    9174    5000
22    8539    3674    12696    10128    10917    7530    11921    6906
23    9414    4899    14083    12000    14131    11141    18873    13926
24    10033    5368    15304    13000    16494    14000    24199    20631
25    11603    6800    17857    15246    20172    18168    31136    29915
26    11961    6800    18786    16205    21804    20000    34356    31903
27    12411    7145    19182    16331    23301    20631    38053    35724
28    12970    8102    19847    16505    24229    22000    41114    38283
29    13202    8102    20549    18000    25159    22864    43903    40511
30    13689    9000    21036    18295    26144    24000    46579    41263
31    13782    8268    21453    18372    27094    24758    49133    43705
32    13910    8507    21917    18568    27904    25000    50948    45000
33    14434    9387    22621    19515    28711    25410    54107    46420
34    14563    9419    22899    19749    29521    26000    56072    47601
35    15794    10164    24124    20328    31257    27345    59681    50000
36    15583    10128    24434    20328    31759    27559    61240    50639
37    16259    10207    24779    20414    32386    28561    63031    50820
38    16272    10207    25382    21000    32853    28579    63670    51035
39    16316    10207    25488    20661    33190    29296    65581    51578
40    16572    10630    26105    21500    33622    29915    66537    51578
41    16565    10128    26032    21457    34032    29476    68068    52610
42    16656    10207    25954    21435    34452    30000    68171    52610
43    16600    10128    26560    22000    34611    30000    69896    53076
44    16498    10100    27109    22455    34926    30200    69905    53076
45    16695    10003    27340    22600    35506    30384    71297    53641
46    16600    9000    27587    22694    35964    30492    71968    55000
47    16592    9000    27432    22694    35862    30384    71714    54690
48    16744    9148    27703    22694    35771    30384    72192    54886
49    16483    8131    27783    22694    36047    30384    72374    55117
50    16515    7596    27426    22281    35836    30000    70936    53678
51    16204    6912    27324    22000    35693    30000    72136    53678
52    15967    5880    26724    21400    35508    30000    70764    53678
53    15528    4126    26537    20941    35355    29503    70646    53641
54    15212    3628    26210    20414    34714    28579    68465    52000
55    14749    2041    25224    19801    33525    26821    66319    50820
56    14271    587    24221    18230    32793    25517    64554    50639
57    13735    0    23341    16205    31735    24500    62541    48000
58    13495    0    22398    14545    30444    22585    60349    45000
59    13018    0    21011    12963    29112    20256    57146    40828
60    11944    0    19470    8166    27312    16262    52819    35574
61    11457    0    18159    5000    25446    12400    50355    30384
62    10178    0    15962    0    22731    6077    46443    20631
63    8688    0    13792    0    19778    0    41922    10309
64    7643    0    12462    0    17725    0    37944    3674
65    6418    0    9646    0    14925    0    32378    0

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