Consider a version of Kremer's O-Ring model. Output Y is produced from 2 separate tasks according...

 

Transcribed Image Text:

Consider a version of Kremer's O-Ring model. Output Y is produced from 2 separate tasks according to the production Y = 91 92 Suppose there are 2 workers in this economy and each worker starts with a low skill level q = 2. Workers can choose to go to university and pay a cost c to increase their level of skill to q = 6 a) (5 points) Suppose that c = 10, is it an equilibrium that none of the workers goes to the university? Justify your answer. b)(5 points) Suppose that c = 10, is it an equilibrium that all of the workers goes to the university? Justify your answer. c)(5 points) For what values of c, we have that both all workers go to university and all workers don't go to university is an equilibrium? Justify your answer. d)(5 points) Suppose we are in a situation like c) where both are equilibria. What are the implications for economic development of this model? Why are poor countries stuck in poverty traps? Consider a version of Kremer's O-Ring model. Output Y is produced from 2 separate tasks according to the production Y = 91 92 Suppose there are 2 workers in this economy and each worker starts with a low skill level q = 2. Workers can choose to go to university and pay a cost c to increase their level of skill to q = 6 a) (5 points) Suppose that c = 10, is it an equilibrium that none of the workers goes to the university? Justify your answer. b)(5 points) Suppose that c = 10, is it an equilibrium that all of the workers goes to the university? Justify your answer. c)(5 points) For what values of c, we have that both all workers go to university and all workers don't go to university is an equilibrium? Justify your answer. d)(5 points) Suppose we are in a situation like c) where both are equilibria. What are the implications for economic development of this model? Why are poor countries stuck in poverty traps?

Answer rating: 100% (QA)

a If c 10 it is not an equilibrium that none of the workers goes to the university The reason is tha... View the full answer