· You have 90 minutes 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 100.
· You should have 4 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. Right now, jetpacks are only sold to a small luxury market. Suppose the number of jetpacks a worker could produce in an hour greatly increased.
T, F, and Explain: Wages for jetpack workers would rise.
2. Suppose native-born Americans and immigrants have exactly the same skills.
T, F, and Explain: Immigration will raise Americans’ average standard of living, but reduce their wages.
3. T, F, and Explain: Landsburg’s Grandfather Principle (Fair Play) says that we should admit more immigrants, but charge them higher taxes to compensate low-skilled Americans for the increase in labor market competition.
4. T, F, and Explain: Thomas Sowell (Race and Culture) argues that market forces tend to eliminate workplace segregation.
5. The ratio of young female college graduates to young male college graduates has sharply risen in recent years.
T, F, and Explain: This decreases the demand for men and increases the demand for women.
6. T, F, and Explain: The economically optimal quantity of crime is zero.
Part 2: Short Answer
(20 points each)
In 4-6 sentences, answer all of the following questions.
1. Suppose there is involuntary unemployment in an unregulated labor market. Use a diagram to show how government regulation of wages could restore full employment. Why don’t actual governments adopt such regulations during periods of high unemployment?
2. Are Caplan’s “selfish reasons to have more kids” more compelling for highly educated couples? Carefully explain your answer.