Prof. Bryan Caplan

Econ 849


HW #2 (please type; answer any TWO essay questions and ALL of the other questions)


1.  (1 page, double-spaced)  Why was there platform divergence in the last U.S. presidential election?  In particular, what quantitative importance would you assign to the various theoretical explanations, and why?


2.  (1 page, double-spaced)  Who will ultimately bear the incidence of the World Trade Center's destruction?  Carefully explain why, keeping elasticities in mind.


3.  (1 page, double-spaced)  How would restricting the franchise to college graduates affect U.S. domestic policy?  In particular, how would the old and the new median voter differ?


4.  Using the two-equation S&D system from the notes, prove/show that Q falls by [bd/b+d]t whether buyers or sellers legally pay the tax.


5.  Using the two-equation S&D system from the notes, prove/show that a profit-maximizing monopolist in a market without taxes produces a larger quantity than a competitive market under a tax-revenue-maximizing government.  To simplify the problem, assume that a=0. 


Hint:  The monopoly maximizes PQ(P)-TC, with TC=Q2/2b.  The government just maximizes tQ(t).


6.  Give examples of:


a.  Single-peaked preferences

b.  Non-single-peaked transitive preferences

c.  Intransitive preferences


7.  Imagine a simple median voter situation with the following twist: party A is more popular than party B, such that every voter is indifferent between their shared ideal point p* provided by party B and a deviation of e from their ideal point provided by party A.  Specifically:


U(A)=U(B) iff


Assume further that if voters are indifferent, they vote for party A. 


Then intuitively answer the following questions: (no math needed)


a.  If both parties maximize their votes, what platforms do they offer and who wins?

b.  If party A has policy preferences (it wants to make p as large as possible conditional on winning), what platforms are offered and who wins?

c.  How would uncertainty about the position of the median voter affect the results?