Economics 321 Final

Prof. Bryan Caplan

Fall, 2014




·         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.  Suppose the economy is in a deep recession. 


T, F, and Explain:  Imposing a maximum wage will reduce unemployment as long as the maximum is low enough.











2. “Imagine several cities, all suffering from housing shortages because of rent control, agree to make it easier for landlords in one city to own buildings in another." Paul Krugman, The Accidental Theorist


T, F, and Explain:  Krugman is arguing that labor market deregulation will fail to alleviate France’s labor shortage.










3. Suppose an employed person is considering whether to search for a higher-paying job during his free hours.  The only cost of search is time, but the would-be job hunter dislikes job search more than he dislikes work.


T, F, and Explain:  A proportional income tax will reduce the time the worker devotes to search.






4.  Suppose I unexpectedly give everyone in Labor Economics an A+ in the course.


T, F, and Explain:  Signaling says this will make it easier for you to get a good job; human capital theory says it won’t.













5.  T, F, and Explain:  In the modern U.S., employment discrimination laws function like price controls, with little effect on labor demand for protected groups.













6.  “This brings us to my last un-Beckerian explanation for small families: Changes in foresight.” (Caplan, Selfish Reasons to Have More Kids)


T, F, and Explain:  Caplan argues that low modern fertility is caused by modern people’s extremely high foresight.











Part 2: Short Answer

(20 points each)

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


1.  Married men out-earn single men by about 40% after controlling for education, experience, IQ, race, and number of children.  Is this convincing evidence that labor markets discriminate in favor of married men?  Using everything you’ve learned, justify your answer.


















2.  Simple estimates say that open borders would roughly double global GDP by moving workers from low-productivity countries to high-productivity countries.  What are some reasons to think that these simple estimates understate the economic benefits of open borders?  (Hint: How is higher immigration like higher fertility?)