Economics 321 Final

Prof. Bryan Caplan

Fall, 2010




        You have 75 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.T, F, and Explain:Additional immigration always reduces nativesí wages.











2.Suppose slavery were still legal.


T, F, and Explain:Economic growth and modern technology would have eliminated slavery by reducing the price of slaves to zero.












3.Suppose that: college-age workers earn $15,000 per year; one year of college tuition $10,000; one year of college raises your annual earnings by $5000 for the rest of your life; and education is 50% signaling.


T, F, and Explain:The private return to education is approximately 5%.The social return to education is approximately 2.5%.







4.Suppose that due to anti-foreign prejudice, immigrants in Japan earn 20% less than equally qualified natives, even though 99% of their workforce is native-born.A typical firm has the following balance sheet:



100 natives†††† @ $40,000 $4,000,000

1 immigrant†††† @ $32,000 †††$32,000

Bondholders†††††††† ††††† $500,000

Stockholders††††††† ††††† $500,000


Total††††††† ††††††††††† $5,032,000


T, F, and Explain:This example shows that market forces are especially effective at reducing discrimination when the fraction of victims is small.










5.Many employers provide free or nearly free health insurance for their workersí spouses and children.


T, F, and Explain:This could reflect statistical discrimination in favor of married workers with large families.










6. Before the 20th century, marital law often forbade married women to work without their husbandsí permission.


T, F, and Explain:This law increase the supply of husbands, reduced the demand for husbands, and thereby raised the price of wives.








Part 2: Short Answer

(20 points each)

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


1. Women and minorities traditionally have higher unemployment rates than white males.Suppose you had detailed data on ten thousand individual workers. How would you test whether the differences in unemployment rates are caused by laws against discrimination?Carefully explain how your test works, and list at least three control variables you think you should include.



















2.Explain the economics behind Caplanís argument for having more kids.Has he convinced you to modify your parenting philosophy or desired family size?Why or why not?