Prof. Bryan Caplan

bcaplan@gmu.edu

http://www.gmu.edu/departments/economics/bcaplan

Econ 103

Spring, 2000

 

HW#1 Answer Key

 

1.  Gwartney and Stroup, problem 1.4 (p.20)

 

a.  I would study more hours, go to more trouble to find old exams, and talk to the professor.

 

b.  I would probably not study at all.

 

c.  I would study less in total, but probably study more hours per day after I got back from vacation, to partially make up for the studying I missed over the weekend.

 

d.  I would probably not study at all.

 

2.  Pick ONE of Bastiat's examples in "What Is Seen and What Is Not Seen."  Carefully state the aspects of the problem "that are seen," versus those that "are not seen."  How might the policies of the current U.S. government be different if people took both kinds of effects into account? (1 paragraph)

 

One of Bastiat's examples is the demobilization - i.e., reducing the size of the military after the end of a military threat.  "What is seen," he explains, is that discharging soldiers increases unemployment and reduces the former soldiers' incomes.  "What is not seen," however, is that the former soldiers could have been doing something else besides marching around all day.  Moreover, the taxes that paid their salaries could have been left in the hands of taxpayers: Paying the army does not "increase income" but transfers income from taxpayers to soldiers.  It seems likely to me that if people factored both effects into account, military spending would be smaller, and at the same time would be adjusted much more rapidly to changing conditions.

 

3.  Briefly (1-2 sentences each) provide a purely selfish explanation for each of the following kinds of behavior.  You do not have to believe your explanation is correct.

 

a.  A doctor devotes 20 years of his life to find a cure for leukemia.

 

The doctor wants to get rich.  If he owns the patent on the cure, that will be easy for him to do.  Even if he doesn't own the patent, however, he will still be famous, and he will be able to convert that fame into riches in a variety of ways (new job offers, book tours, interviews, etc.)

 

b.  Bill Gates gives computers to needy children.

 

Gates is worried that government policies (such as antitrust laws) will harm Microsoft.  He thinks that increasing his popularity with the general public by giving to charity reduces the chance that government policy will turn against him.

 

c.  Bill Clinton tells an audience that "he feels their pain."

Clinton wants to be reelected (I'm assuming this was before the last election!).  People are more likely to vote for him if he seems compassionate.  Therefore he says things to create this impression.

 

d.  Someone does Christmas collections for the Salvation Army.

 

They get a percentage of the donations they collect.

 

e.  You give your friend a ride to the airport.

 

You think that your friend will be more likely to give you a ride in the future if you give one to him now.

 

4.  What was the opportunity cost of doing this homework assignment? (2-3 sentences)

 

My next best alternative was probably reading another article.

 

5.  Briefly (1-2 sentences each) use marginal analysis to explain the following:

 

a.  Why tenured professors at Harvard usually keep working hard, but tenured professors at lower-ranked schools often do not.

 

At Harvard, the marginal gain of a little more hard work is a little bit more fame and influence.  When Harvard professors say a little more, people listen a little more.  In contrast, tenured professors at lower-ranked schools usually don't have any real audience for their thoughts.  Even if they work hard, they will still be nobodies.

 

b.  Why I don't brush my teeth after a long plane flight.

 

The marginal increase in the chance of tooth decay is very small if I just skip brushing once.  When you are very tired, however, the marginal suffering of staying up one more minute can be large. 

 

c.  Why students often quit working in a class if they get 100% on the midterm.

 

They can't get better than an A in the class anyway, and are likely to get it even if they don't do much additional work.

 

d.  Why you are more likely to speed when other drivers are already speeding.

 

When everyone else is driving fast, the odds that you will get a ticket for driving fast are quite low.  But if everyone else is obeying the law, you greatly increase your chance of getting a little by speeding up a little.

 

e.  Why anyone orders just one pizza from Pizza Hut.  (When you buy one pizza at Pizza Hut, the second is half price!)

 

After eating the first pizza, the marginal benefit of the second pizza is small.  You may be too full to eat it, and it will go stale before you get around to finishing it.