Economics 410 Midterm

Prof. Bryan Caplan

Fall, 2014

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 diaqrams, when helpful), explain why.

1.     Suppose a good has positive externalities, and transaction costs are high.

T, F, and Explain: The good will not exist unless government provides or subsidizes it.

FALSE. As long as supply and demand still intersect at a positive quantity of the good) the good will exist. The positive externality makes the equilibrium level of production inefficiently low, but not zero.

2.     Assume you value your time at $10/hour, and it takes an hour total to vote. The probability that your vote changes an election's outcome is 1-in1,000,000. A victory for your preferred candidate over his rival is worth $10,000 to you.

T, F, and Explain: You will vote unless there are more than 1,000,000 voters.

FALSE. The expected value of voting is $10,000*.00001=$.01, which is far less than the $10 cost. Therefore you won't vote. The number of voters is a red herring, because we've already been told that the p(decisiveness)=1-in-a-miIlion=.00001.

3.     The U.S. has about 316 million people; Mexico, about 122 million.

T, F, and Explain: Allowing Mexicans to vote in U.S. elections would have little effect on electoral outcomes because Americans would still outnumber Mexicans by almost 3:1.

FALSE. This would increase the size of the electorate by roughly ONE-THIRD, a huge change; in the real world, elections can easily be swayed if a mere 1% of voters change their minds. And there is every reason to think that the new voters would have sharply different views than existing voters, since (a) U.S. Mexicans lean heavily Democratic, and (b) Mexicans would at minimum be

sharply less supportive of immigration restrictions from Mexico. As a result, both parties would adjust their platforms to be more appealing to Mexican voters.

4.     T, F, and Explain: The Median Voter Model does for democracy what the supply-and-demand model does for politics.

FALSE. The Median Voter Model does for democracy what the supply-and-demand model does for MARKETS: Provide a simple framework that makes broadly accurate social predictions given people's preferences.


5.     T, F, and Explain: According to Caplan's results, high-income Americans are, correcting for race, actually less likely to identify as Republican than low-income Americans.

FALSE. High-income Americans, even correcting for race, are slightly more Republican than the rest of the population. The effect goes in the expected direction, it's just much smaller than most people think.

6.     The U.S. federal government's Controlled Substances Act of 1970, still in place, strictly prohibits marijuana. The General Social Survey asks, "Do you think the use of marijuana should be made legal or not?" Selected results:


U.S. Adults

U.S. Adults>30 ears old


























T, F, and Explain: The Median Voter Model predicts that marijuana will be legalized as soon as a majority of U.S. adults favors legalization.

FALSE. The Median Voter Model predicts that marijuana will be legalized as soon as a majority of U.S. VOTERS favors legalization. Since older Americans are more likely to vote and less supþortive of legalization, we shouldn't expect marijuana to be legalized until a near-majority of older Americans support it.

Part 2: Short Answer (20 points each)

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

1.               If Sears and Funk are right about voter motivation, should we still expect political bargaining to be important? Why or why not?

Of course. People can and do bargain to advance their ideology and/or group interests, not just their self-interest. For example, conservatives might offer to stop supporting the death penalty in exchange for more restrictions on abortion (ideological bargaining). Or Hispanics might offer to support lower taxes in exchange for higher immigration quotas (group-interested bargaining). The main caveat: Ideology might make political actors unwilling to compromise, making bargaining less common (though still important). 

2.               From an economist's point of view, which of Dye and Zeigler's claims are least surprising? Most surprising? Be specific.

The least surprising from an economist's point of view: Everything they say about voter apathy and voter ignorance. This is just the logic of collective action and rational ignorance from a slightly different point of view. The most surprising: Their findings that less tolerant and more authoritarian policies would actually be popular. Given the Median Voter Model, you would expect voters to support the status quo.