Economics 410 Midterm
Answer Key

Prof. Bryan Caplan

Spring, 2001

__Part 1:__ True,
False, and Explain

**(10 points each - 3
for the right answer, and 7 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. Presidential candidates usually spend over a year running time-consuming and expensive campaigns.

__T, F, and Explain:__
**Candidates would greatly reduce
their effort if they factored in their actions' probability of decisiveness.**

FALSE. *Individual voters* have low probability
of decisiveness, but Presidential candidates have a lot. One wrong word by a candidate can ruin his
chances of victory. If one candidate
campaigned for just a month, while his competitor still campaigned for a full
year, the "lazy" candidate would be at a severe disadvantage.

2. Suppose there is an election with 31 voters; each voter's probability of voting "Yes" is .45.

__T, F, and Explain:__
**Each voter's probability of
casting the decisive vote is 7.6%. **

FALSE. (2n+1)=31, so n=15. p=.45. So:

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3. Suppose that politicians care SOLELY about winning.

__T, F, and Explain:__
**Uncertainty about the position of
the median voter will not generate platform divergence.**

TRUE. Both politicians maximize their chances of
winning if they both offer the platform they __expect__ the median voter
wants. Thus, if they both care solely
about winning, platforms converge.
Uncertainty only leads to divergence if politicians care about policy as
well as winning. Then they will accept a
greater risk of losing the election in order to pursue their preferred
policies.

4. **Hoffman's
("Rationality Reconceived") discusses three types of responses
to the literature on voter ignorance.**

__T, F, and Explain:__
Hoffman would assign the Miracle of Aggregation to the __third__
group of responses.

TRUE. Hoffman's third response is to "accept
the empirical evidence" on voter information but "modify the ideal of
rationality." This is exactly what
the Miracle of Aggregation says: Voters may well be highly ignorant, but the
aggregate outcome is still rational because voters' errors cancel each other
out.

5. Assume that transactions costs of political bargaining are zero.

__T, F, and Explain:__
**In a standard election, the
Median Voter Theorem holds even if some voters have multi-peaked preferences.**

FALSE. With zero transactions costs, the __Mean__
Voter Theorem holds, not the Median Voter Theorem. Under these assumptions, political bargaining
leads the most efficient policies to be adopted.

6. __T, F, and
Explain:__ **In spite of its weaknesses, the SIVH is more likely to work for
"big" issues where voters' stakes are high.**

FALSE. The SIVH fails for many "big"
issues like Social Security, Medicare, and war.
And it works well for some small issues like smoking. Overall, there is no apparent tendency for
the SIVH to work better as stakes rise.

__Part 2:__ Short
Answer

**(20 points each)**

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

1. How might Olson
explain revolutions in a way consistent with the "logic of collective
action"? (*Hint*: What does
Olson say about "by-products"?)

Revolutions are a puzzle for
Olson, because they appear to be collective goods: if a new government seizes
control, it affects activists and non-activists alike. Olson might however point out that
revolutionary movements can buy cooperation with "by-products." The most obvious way to do this is to offer
government jobs and other positions of authority to early supporters of the
revolution. One might also threaten
people if they fail to contribute.

2. Critique the
following argument: "Restricting
the franchise to college graduates would probably have little effect on
political outcomes, because ideology and education are almost
unrelated." Use Median Voter
diagrams to illustrate your answer.

Restricting
the franchise in this manner would probably have little effect on the overall
liberalism/conservatism of policy. The
reason is simply that ideology and education are largely unrelated, so the
median level of liberalism won't change much.
(More educated voters do tend to be more extreme, but this just
stretches out the tails of the distribution without moving the median). However, policy would probably change in more
subtle ways. There are many issues where
educated people across the ideological spectrum agree with each other, and
disagree with the less educated: free trade, tolerance of dissent, immigration,
how well markets work, etc. Politicians
would have to change their platforms to cater to these distinctive preferences
of college graduates.