Political Economy
Midterm Examination 1

These questions are from the test bank. Some questions have multiple parts.

Short Answer Essay


1. Marx identified three problems with capitalism.

(a) Briefly explain the Law of the Falling Rate of Profit.

(b) Briefly explain the Law of Concentration.

(c) Briefly explain the Law of Disproportionality.

2. According to Vladimir Lenin, how did the capitalistic countries escape the inherent problems of capitalism?

3. What is Dependency Theory?

(a) What are the three eras of dependency?

4. According to Marx and Lenin, what are the two purposes of a colony?

5. What are property rights?

(a) Why are property rights a "bundle of rights/"

(b) What are intangible property rights? Please describe two of them.

6. What is economic freedom?

(a) What is the Index of Economic Freedom?

(b) Which country consistently has the number one ranking for economic freedom?

7. Economic freedom leads to four types of specialization. Please briefly describe them.

8. What are three similarities between a market and government?

9. What are four differences between a market and government?

10. Government has five types of regulatory controls that it can impose on a market. Please list and define three of them?

11. Please briefly define the four theories of regulation

(a) What is the Public Interest Theory?

(b) What is the Capture Theory?

(c) What is the Principal Agent View?

(d) What is Parkinson's Law?

12. What are the total costs of a government regulation (4 costs on society)?

13. What are three problems with government regulations?

14. A company is successful and expands its customer base by selling shoes through the internet Draw a market for shoes.

(a) Which function shifts?

(b) What happens to market price and quantity?

15. A country experiences a surge in its birth rate. Draw a market for diapers.

(a) Which function shifts?

(b) What happens to market price and quantity?

16. Please draw a market for cookies with an equilibrium price of $3 per box. This market has no government interference. It is a completely deregulated market.

(a) What happens if a price shock increases the price to $4 per box and neither the demand nor supply function shifted?

(b) What happens if a price shock increases the price to $2 per box and neither the demand nor supply function shifted?

17. You have a rental market with a market rent of $2,000 per month. Please draw the supply and demand functions. Who represents the supply and demand?

(a) Government imposes a price ceiling of $500 per month. What happens to the market? Please indicate on graph.

(b) What are some long-term effects of this price control?

(c) What happens to social welfare? Please explain.

18. You have a labor market with a market wage of $3 per hour. Please draw the supply and demand functions. Who represents the supply and demand?

(a) Government imposes a price floor of $10 per hour. What happens to the market? Please indicate on graph.

(b) What are some long-term effects of this price control?

(c) What happens to social welfare? Please explain.

19. What is the Laffer Curve?

(a) What happens to tax rates over the life of an empire?

(b) Is it always good to be increasing tax rates?

20. Please draw the wine market with an equilibrium price of $10 per bottle. Government imposes a $3 tax on wine, because drinking is a sin and bad for a country's productivity.

(a) The statutory incidence is placed on the producers. What happens to the wine market?

(b) What is a price wedge?

(c) What happens to social welfare?

(d) What happens in theory, if the government changed the statutory tax incidence to buyers?

21. The agricultural producers are financially hurting, because the price of soybeans it too low. Please draw a market for soybeans.

(a) Who represents the supply? Who represents the demand?

(b) Government grants a subsidy to the soybean farmers. Please show this on the graph.

(c) Why do subsidies have a worse social welfare loss than taxes?

22. Why do black markets form?

(a) Why do some countries have a higher percentage of black markets?

(b) What problems do black markets impose on the government?

 

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