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Question 2

In cases where a monopoly exists, the equilibrium price is not usually dependent upon on the typical market forces of demand and supply. In the case of education, monopoly by public schools essentially means that public schools benefit increasingly from public funds set aside for education by default. As such, not only do parents have limited choices when it comes to schools, skewing the balance of supply and demand, due to higher demand, but the system also leads to a compromise on standards, fuelled largely by the lack of true competition for clients, or students. This lack of competition creates a market in which demand exceeds supply. Further, such a system leads to a skewed education system in which access is limited to those privileged enough to have access to public schools; such that areas where there are fewer public schools have less access to education compared to other areas with a higher number of schools. This is evidenced by the educational disparities that exist between the various racial groups, with the disparities in a way following a geographical pattern.

The introduction of charter schools would undoubtedly increase competitiveness, and consequently, according to the economic theory, productivity usually increases with increase in competitiveness in any market. This notion is also captured by Caroline Hoxby’s articles, which claim that increased choices of schools from which parents can choose from, usually forces schools to become more competitive by improving their levels of productivity and performance. Further, Hoxby’s articles also posit that with an increase in the sharing of public funds, usually comes a fall in student grades, mainly due to the fact that public schools skew the value of educating a single student, in terms of quality and quantity. This stems from the fact that in any case of monopoly, products are not usually produced at lowest opportunity cost possible. This it can be argued, is demonstrated by the fact that despite the increased funding from the government, the level of performance in public schools continues to fall with increased enrollment. Due to this compromise in the quality of education, consumers are less satisfied with the education offered by public schools, leading to a situation whereby those who are able, are actually willing to pay more for the same services elsewhere, hence the success rates of private schools and an increasing level of enrollment in private schools.

Question 3

The authors essentially used an instrument due to the presence of numerous independent variables that were endogenous. The usage of the instrument allowed for the variables discovered to be correlated with the error term. Age fits the criteria suggested by Hoxby in her article, as it is not independently correlated to the dependent variable, instead it is actually correlated to the independent variable. The criterion employed by the instrument, allows Boheim and Lackner to distinguish how long an individual has stayed in college. The basic argument behind such an inquest is that the older an individual is, the more capital they have acquired. Hence the older an individual is, the more human capital they actually have. In essence therefore, age is correlated to the independent variable being investigated: that of the relationship between time spent in college and the level of human capital gained.

Yes, the findings do in a way serve to confirm Boheim and Lackner’s claims regarding college playing experience and increased human capital. The coefficient estimate findings by the researchers indicate that the entry age is significant when it comes to determining total salary as well as the signing bonus as dependent variables. Seemingly, the older an individual is, the greater their human capital, to the extent that the total salary earned by the athlete increases by a significant 31% every year. The athlete therefore earns more with each year they spend in college, in a way reaffirming the claims by the NCAA regarding how time spent in college improves human capital.

Height is exogenous because it is not only an essential characteristic for an athlete, but also because height is less prone to fluctuation. While weight is significant, it is not as significant as height, and is essentially more prone to fluctuations. Due to its proneness to variability, weight becomes an endogenous factor that cannot be taken as a basis for determining the entry point.

Question 4

False: Complementary goods are essentially goods that if one good’s price is increased, the demand for the complementary good also reduces. Although the patent protection and access to patent protection may affect the amounts companies spend on research and development. The relationship is not complementary, research and development is not dependent on patent protection, hence they cannot be referred to as being complementary. It would be possible for the pricing of patent protection to increase, without the demand for research and development being affected.

Uncertain: Although violation of the Sherman law is definitely one of the reasons for the failure of cartels, it is not the only one, hence although such a claim is not false, it is not necessarily true. In my opinion, one of the main reasons for the failure is undoubtedly the nature of demand of the primary product the cartel deals in. For a cartel to succeed, the product’s demand must be inelastic. Elasticity in demand makes prediction of profits harder, hence reducing the appeal of a particular market for cartels.

True: The banks became reckless in the manner with which they were offering loans primarily because they were aware that they would not be the ones bearing the risk in case the loanees defaulted. This led to a situation whereby risky loans taken backfired and rendered the securities useless, as the pricing for the houses rendered the maintenance of the loans impractical, leading to the housing bubble.

False: The Act will only serve to make it mandatory for people to have insurance, an issue that might not necessarily lead to increased adoption of insurance. The problem with the current situation is not really policy, but rather, the economy, most of the individuals who do not have insurance are unable to afford it, and a simple law change is unlikely to change the situation.