Name:_______________________

Economics 849 Final

Prof. Bryan Caplan

Fall, 2005

Instructions:

·        You have 2 hours, 30 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 150.

·        You should have 6 pages, counting this one, PLUS one page with a regression.

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 a government airline has total costs of \$1 billion and takes in \$900 million in revenue.

T, F, and Explain:  If there are no fixed costs, no externalities, and constant marginal costs, this project is definitely Kaldor-Hicks inefficient.

2.  A market has the following S and D curves:

S: Q=-100+ 3P

D: Q=50-3P

T, F, and Explain:  The Laffer curve peaks when t=100/3.

3. One implication of the Tiebout model is that voters themselves are, in a sense, part of the MWC.  If they don't like what their government does, they can leave, which ultimately means that the the other branches of government cannot get their way without them.

T, F, and Explain:  In Cooter's model of division of powers, Tiebout competition expands the Pareto set but shrinks the bargain set.

4.  T, F, and Explain:  Three of the variables that Caplan says "make people think like economists," also predict greater political knowledge in Delli Carpini and Keeter.

5.  T, F, and Explain:  Caplan says that Wittman (The Myth of Democratic Failure) is both invalid and unsound because it ignores expressive voting and rational irrationality.

Part 2: Short Essays

(20 points each)

In half a page each, answer all of the following questions.

1.  Drawing on everything you have learned, analyze the efficiency case for government subsidies for medical care.

2.  How would Sears and Funk ("Self-Interest in Americans' Political Opinions")  respond to Peltzman ("An Economic Interpretation of the History of Congressional Voting in the Twentieth Century")?

3.  The General Social Survey asks respondents the following question: "On the whole, do you think it should or should not be the government's responsibility to keep prices under control?"  The possible responses are "definitely should be"=1, "probably should be"=2, "probably should not be"=3, and "definitely should not be"=4.

Responses to this question were regressed on the following variables: black (=1 if respondent is black), othrace (=1 if respondent is neither white nor black), male (=1 if respondent is male), polviews (1-7 ideological scale, 7 being most conservative), joblose (1-4 measure of job security, 4 being most secure), log of real income, and educ (education in years).

The results are on the next page.  In what ways are these results typical of Caplan's findings on economic beliefs?  In what ways, if any, are they atypical?  Explain.

4.  Caplan is puzzled by the fact that policy is not worse than it is.  Briefly explain the puzzle.  Then offer a plausible explanation.  Given your explanation, would term limits make policy better or worse?

5. Could free-market anarchism be stable given the current state of public opinion?  Given any state of public opinion?  Explain.