Economics 321 Final

Prof. Bryan Caplan

Fall, 2012




·         You have 75 minutes to complete this exam. 

·         Write all answers directly on the 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:  Krugman's The Accidental Theorist shows that economists largely agree about the effects of labor market regulation.













2.  The (non-profit) military provides teaches its employees a lot more general job skills than most for-profit employers.


T, F, and Explain:  This is precisely what you would expect, because for-profit employers have no incentive to teach general job skills.












3.  Most people think that redistribution is altruistically motivated.


T, F, and Explain:  In the real world, however, redistribution seems carefully designed to serve the selfish goal of reducing crime.







4.  Suppose a year of education increases your marginal product by 2% but increases your income by 10%.  Tuition is free and there is a 50% proportional tax.


T, F, and Explain:  Your private return to education is 5%, but your social return to education is 1%.











5.  Skilled foreigners rarely illegally work in the United States even though it is fairly easy for them to legally travel to the United States.


T, F, and Explain:  The economics of discrimination has a simple explanation for this fact.











6. “Perhaps the most popular selfish explanation for smaller families, though, claims that people used to have children to support them in their old age.” (Caplan, Selfish Reasons to Have More Kids)


T, F, and Explain:  Caplan is blaming Social Security for declining family size.










Part 2: Short Answer

(20 points each)

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


1.  Some sociologists have argued that discrimination on the basis of educational credentials should be illegal.  What do the human capital and signaling models of education predict about the effect of such a law? 


















2.  The famous statistician Karl Pearson opposed Jewish immigration to England on the following grounds: “What is definitely clear, however, is that our own Jewish boys do not form from the standpoint of intelligence a group markedly superior to our natives. But that is the sole condition under which we are prepared to admit that immigration should be allowed.”  How would Caplan respond?  Who is right?