An economist makes an assumption that each additional year of education causes future wages to rise by 10 percent. In this model, if a person with 12 years of education makes $21,500 per year, then a person with 4-year college degree would earn $enter your response here per year. (Round your intermediate calculations to four decimal places.)

You want to know the yearly earnings of a person with a 4-year college degree if the degree increases earnings by 10% for each year of education and a high-school graduate would earn $21,500.

Multiplier

Each year of college is said to increase earnings by 10%, so multiplies the base wage by 1+10% = 1.10. Then 4 years of college will multiply the base wage by 1.10⁴.

The earnings of a college graduate are predicted to be ...

21,500(1.10⁴) = $31,478.15 . . . . per year

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Additional comment

After 10 years in the work force, 14 years after high school graduation, the college graduate has earned about 13,800 more than the high school graduate. This means the education only has a net positive value in that time frame if it costs less than about $3450 per year. Many students graduate college with debts of several tens of thousands of dollars, suggesting that the economics of more education may be more complicated than suggested by this model.