Economics 321 Final

Prof. Bryan Caplan

Fall, 2003




        You have 2 hours to complete this exam.

        You may use any books, notes, or other materials that you wish, but avoid spending too much time on any one question.

        Partial credit may be awarded on all questions.

        The maximum possible number of points is 150.

        You should have 6 pages, counting this one.


Part 1: True, False, and Explain

(10 points each - 2 for the right answer, and 8 for the explanation)

State whether each of the following six propositions is true or false. In 2-3 sentences (and clearly-labeled diagrams, when helpful), explain why.


1. Suppose the government imposes a $20/hour maximum wage.


T, F, and Explain: There will be an increase in ALS and a decrease in ALD.










2. Unions not only push wages up above market-clearing levels; they also usually try to equalize members' wages.


T, F, and Explain: Both of these efforts undermine market checks on taste-based discrimination by employers.











3. Suppose a worker lives for three periods. If he goes to school in period one, he earns zero in period 1, $10,000 in period 2, and $10,000 in period 3. If he does not go to school in period one, he earns $6000 in all three periods.


T, F, and Explain: With an interest rate of 10%, going to school is a profitable investment, even if tuition is $2000.








4. T, F, and Explain: According to Krugman, the main "right-wing wrong" is the false assumption that federal income taxes have a substitution effect but no income effect.











5. T, F, and Explain: The natural rate of unemployment would all else equal - be lower in an economy with no economic growth.











6. Caplan argues that the "standard view of the welfare state" is wrong.


T, F, and Explain: One of its main errors is the claim that bigger welfare programs encourage more immigration.










7. Suppose the typical firm's finances look like:


10 male workers @ $100,000 $1,000,000

0 female workers @ $70,000 $0

Bondholders $0

Stockholders $200,000


Total $1,200,000



T, F, and Explain: Assuming that the male-female pay gap is 50% taste-based discrimination and 50% statistical discrimination, a non-discriminatory employer could more than double his profits.


















T, F, and Explain: The preceding diagrams accurately show the effect of modern technology on women's value relative to men's in both the job market and the marriage market.












9. T, F, and Explain: In today's society, the social benefits of high IQ may be much less than the private benefits of high IQ.










Part 2: Short Answer

(20 points each)

In 4-6 sentences, answer all of the following questions.



1. Taking into account everything you have learned in this class, how much do you expect to gain from earning an undergraduate degree financially and otherwise? Explain using relevant information from your own personal situation.

















2. Relying on Landsburg's analysis of the effects of population growth, diagram the effect of improved birth control today on Aggregate Labor Markets one hundred years from now. Explain.

3. What would Caplan predict would happen to women and minorities if laws against discrimination were abolished? To what extent is he correct? Carefully explain your reasoning.