· 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: Raising the minimum wage has a smaller disemployment effect for low-skilled workers in unpleasant occupations.
2. T, F, and Explain: Clemens (“Trillion-Dollar Bills on the Sidewalk”) concludes that free global migration would increase global GDP by $1-3 trillion dollars per year.
3. Suppose Virginia imposes a $10,000/person head tax, and spends the money on the world’s most luxurious governor’s mansion.
T, F, and Explain: Labor supply in Virginia will definitely increase.
4. Controlling for IQ, education, and family status, white and black labor income is almost equal. If you look closer at the data, however, less-educated whites outearn less-educated blacks, but more-educated blacks outearn more-educated whites.
T, F, and Explain: This is consistent with both statistical discrimination and “reverse discrimination.”
5. “I can train graduate students to become professors. No magic there; I'm teaching them the one job I know. But what about my thousands of students who won't become economics professors? I can't teach what I don't know, and I don't know how to do the jobs they're going to have. Few professors do.” (Caplan, “The Magic of Education”)
T, F, and Explain: Caplan is arguing that going to college rarely helps students get a job.
6. Suppose the U.S. adopted open borders.
T, F, and Explain: In the market for mates, native-born men would gain more than native-born women.
Part 2: Short Answer
(20 points each)
In 4-6 sentences, answer both of the following questions.
1. Name a labor market regulation likely to have its intended effect without significant negative side effects. Carefully explain your reasoning. The regulation need not actually exist, as long as it would work well if tried.
2. “New ideas come from people – especially smart, creative people.” (Caplan, Selfish Reasons to Have More Kids) Use ALS-ALD diagrams to show why the long-run effect of higher population is better for workers than the short-run effect. Carefully explain your diagrams.