Free response question

IEO past paper: 2023 International Economics Olympiad, open questions

Open Question 1. Human Capital Theory The Human Capital Theory suggests that individuals invest in education when the present value of the investment is positive, therefore comparing the present value of the associated costs and benefits. Let's suppose that Julia just finished High School. She must choose between three alternative career paths. There are only three periods of (working or studying) life after high school, for simplicity reasons. The three choices Julia faces are the following: 1. Work as a cashier in a large supermarket chain with a salary of 12,000 euros for each of the three periods. 2. Study Marine Biology at the University. She will have to study for one period with a tuition fee of 7,000 euros. After graduation, she will earn 30,000 euros for each of the remaining two periods. 3. Study Philosophy at the University and receive a Doctoral Degree in Philosophy (DPhil). She will have to study for two periods with tuition fees of 5,000 euros per period. After graduation she will earn 60,000 euros for the remaining period. Suppose the interest rate per period is set at 10%.