ECO 6655 Review Questions for Final Exam
1. It is widely believed that standard neoclassical (supply and demand) economics supports free-market conclusions, while behavioral economics (game theory experiments, bounded rationality, Winner’s Curse, imperfect information models, etc.) supports government intervention. Give two counter-examples. Explain your reasoning.
2. Name one concept from this class that you believe will have the largest private benefit to you as either a consumer or a businessperson and explain your answer. Name and explain a concept from this course which you believe would have the largest social benefit if it were widely understood. Finally, has there been any concept discussed in class which you believe may be helpful either privately or socially for students, qua students to understand? Explain.
3. Do you think political decision-making is more like a coordination game or a Prisoner’s Dilemma game? Explain your answer, using either a matrix or decision tree (extended form). Under what circumstances are political exchanges positivesum and under what circumstances are they zero-sum? Give an example of positive-sum political exchange that is still socially inefficient, and one of zerosum exchange that manages to be socially efficient.
4. A puzzle: The relationship between education and earnings is well-established; people with higher levels of education earn higher incomes over their lifetimes, much more. Now think about your own education, and be honest: What percentage of the material covered in your college courses is applicable to your current or intended career? For myself, I would say I use around 30% of what I learned in my Econ Ph.D. program, and I am an academic economist! If a high percentage (say, over 70%) of your education applies to your career, then you are off the hook. If so, all you have to do is list the topics covered in two recent courses and explain how you will or have used them in your work (10-12 topics total would do it). If, like most people, the percentage is fairly low, then offer an explanation of why it is that education leads to higher earnings, if so little of it is relevant to one’s intended career path.
5. On asymmetric information:
a. Give an example where the buyer has more information than the seller, and how that market is made inefficient by that asymmetry. Explain your answer in 3-4 sentences.
b. Give an example where the seller has more information than the buyer, and how that market is made inefficient by the asymmetry. Explain in 3-4 sentences.
c. How can governments reduce asymmetric information problems? Explain in 2-3 sentences.
d. How can markets reduce asymmetric information problems? Explain in 2-3 sentences.
6. On bureaucracy and public goods:
a. Can an imperfectly competitive market still be more efficient at providing a good or service than the government? (explain in 3-4 sentences)
b. Explain the incentives faced by a bureaucracy. Is there a way to give bureaucrats an incentive to simultaneously improve quality and reduce costs? (2-3 sentences)
c. Do markets ever provide public goods, even though they are non-excludable? (3-4 sentences)
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