Economics 321 Final

Prof. Bryan Caplan

Fall, 2004




        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. If a worker makes 10 units of a product that will sell for $5 each six months from now, his employer will normally pay him less than $50.


T, F, and Explain: The employer is taking advantage of the worker because he pays him less than his MVP.










2. Suppose the government imposes a $20/hour minimum wage.


T, F, and Explain: There will be a surplus of labor and ALS will increase.










3. "Among the many negative aftermaths of slavery has been a set of counterproductive attitudes toward work, among both the slaves and their descendants and the non-slave members of slave societies and their descendants... [I]n Malaya, where manual labor was associated with slavery, an observer in Malacca said: 'You will not find a native Malay who will carry on his back his own or any man's property, however much you may offer him for doing so." (Sowell, Race and Culture)


T, F, and Explain: This passage is consistent with the idea that because they do not have to be paid a compensating differential - slaves are especially likely to do safe but unpleasant work.






4. Suppose education is 100% signaling, and students have to pay tuition.


T, F, and Explain: A proportional income tax would reduce the incentive to acquire education, and thereby increase the efficiency of the market for education.















5. T, F, and Explain: Landsburg argues that cutting welfare is sometimes entirely fair.













6. T, F, and Explain: At minimum, discrimination laws give employers an incentive to hire minority workers and see if they work out.












7. Controlling for IQ, blacks actually have more years of education than the average white. Now suppose an employer has to choose between two workers. Both have masters degrees, but one is white and the other is black.


T, F, and Explain: If it is illegal to administer IQ tests, an employer who practices statistical discrimination will hire the black worker.











8. When there is a lot of household production to do, economics can explain why is makes sense to have one member of a married couple specialize in household production.


T, F, and Explain: However, economics cannot explain why that "one member" is usually the wife, rather than the husband.















9. T, F, and Explain: The loser-pays rule always discourages people from filing lawsuits.









Part 2: Short Answer

(20 points each)

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



1. What kinds of labor market regulation are least economically objectionable? Explain your answer.



















2. The ratio of black income to white income started rising years before any civil rights laws were passed. Does this show that discrimination against blacks has become weaker over time? Why or why not?

3. Under a military draft, married men are often exempt. Using supply-and-demand diagrams for the marriage market, show the effect of this exemption from both the "men's perspective" and the "women's perspective." Be careful to correctly label both diagrams.