Name:_______________________

Economics 410 Final

Prof. Bryan Caplan

Fall, 2014

Instructions:

·         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 that in a society with 10 million voters, voters are evenly split (50/50) in 10% of elections, but deeply divided (60/40) the other 90% of the time.  In the close elections, p(decisiveness)=0.001%.

T, F, and Explain:  In a random selected election in this society, a voter’s p(decisiveness) is approximately .0001%.

2. T, F, and Explain:  Democracy is better for the majority than dictatorship because democracy makes it very cheap for voters to protect their interests.

3. Suppose Congress can pass clarifying legislation at zero cost whenever the Supreme Court misinterprets legislation.

T, F, and Explain: In Cooter’s MWC model, the Supreme Court will be powerless.

4. Suppose states engage in Tiebout competition, and voting is largely expressive.

T, F, and Explain:  The fastest-growing states will probably adopt many policies that “sound bad.”

5.  “Competition is like water held in a sieve.  To argue that competition does not exist because it is absent somewhere is like saying water is not leaking because one of the holes in the sieve is plugged.”

T, F, and Explain:  This is Caplan arguing that anti-market bias leads voters to mistakenly favor using government regulation to “promote competition.”

6.  T, F, and Explain: According to Caplan (The Myth of the Rational Voter), the average economist’s ideological stance on economic issues is consistently moderate.

(20 points each)

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

1. Most governments raise little revenue from taxes on negative externalities.  Why is this surprising from an economic point of view?  Using everything you’ve learned, what is the best explanation for the rarity of such taxes in the real world?

2.  Suppose the planet were ruled by a single democratic government.  The people stay the same; only the form of government changes.  What are the most significant policy changes likely to emerge?  Defend your answer.