Name:_______________________

Economics 410 Final

Prof. Bryan Caplan

Fall, 2012

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. T, F, and Explain: In a simple Median Voter Model, voting has neither positive nor negative externalities.

2. Rationally ignorant voters can control politicians by combining random monitoring with harsh punishments.

T, F, and Explain: This mechanism still works if people vote sociotropically instead of self-interestedly.

3. Suppose the Council of Economic Advisors could veto U.S. tariff legislation with a unanimous vote. The median CEA member’s most-preferred tariff is 0%, the median Congressman’s is 20%, the median Senator’s is 30%, and the President’s is 10%.

T, F, and Explain: In Cooter’s Minimum Winning Coalition model of division of powers, the equilibrium tariff rate will be 0%.

4. T, F, and Explain: Wittman would argue against subdividing existing governments to increase inter-governmental competition.

5. “If leaders ignore the public’s policy preferences, they will be thrown out of office no matter how good economic conditions are. If they fully implement those preferences, though, leaders become scapegoats for poor economic performance.” (Caplan, The Myth of the Rational Voter)

T, F, and Explain: Caplan’s story implies that local governments will be more efficient than national governments even if voters are equally irrational in all elections.

6. “Most of the elderly’s health problems are admittedly not contagious, but support for Medicare does not rest on ‘anti-market bias.’ The economic rationale for Medicare is simply altruism: Americans genuinely care about their fellow Americans.”

T, F, and Explain: This argument is sound.

Part 2: Short Answer

(20 points each)

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

1. “There are multitudes with an interest in peace, but they have no lobby to match those of the ‘special interests’ that may on occasion have an interest in war.” (Olson, The Logic of Collective Action)

According to Olson, how should we expect foreign policy to respond to these facts? Is he right? Describe a simple way to empirically test Olson’s story.

2. Most economists think that existing immigration restrictions are inefficiently strict. What provides the best explanation for this inefficiency: special interests, expressive voting, or systematically biased beliefs about economics? Use everything you have learned to defend your answer.