Economics 410 Final

Prof. Bryan Caplan

Fall, 2011




·        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 voters suffer from what psychologists call “status quo bias” – they naturally tend to like whatever policies they currently happen to have.


T, F, and Explain:  Politicians retain a strong incentive to appeal to the preferences of the median voter.











2. One explanation for the failure of the SIVH is that voters are too ignorant to identify their own interests.


T, F, and Explain:  Consistent with this explanation, Sears and Funk (“Self-Interest in Americans’ Political Opinions”) report that more-informed voters are more selfish than less-informed voters.












3. T, F, and Explain:  The Tiebout model predicts that sub-national governments will not try to correct externalities problems.








4. T, F, and Explain: Wittman blames most government failures on misleading political advertising.












5.  “[M]y implicit assumption is that lower taxes would be balanced by privatization and cuts in popular programs like Social Security and Medicare.” (Caplan, The Myth of the Rational Voter, chap.3, note 25)


T, F, and Explain:  Caplan is arguing that economists underestimate the economic harm of high taxes.












6.  The most irrational policies seem to be adopted by dictatorships, not democracies.


T, F, and Explain:  The Median Voter Model with rationally irrational voters can explain this pattern.












Part 2: Short Answer

(20 points each)

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


1.  “In government, on the other hand, there is no concrete test of the expert’s success. In the absence of such a test, there is no way by which the voter can gauge the true expertise of the man he must vote for.” (Rothbard, Power and Market)


Using everything you have learned, propose an easy-to-use “concrete test” that voters could use to judge a politician’s expertise.  How would Rothbard respond?


















2.  “The War on Terror is a great example of an availability cascade.”  Carefully explain why someone might believe this statement.  What would be convincing evidence that the War on Terror is not an availability cascade?