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Directions: You have short answer questions.  This is open book.  You can use both textbooks to answer them, as well as my lecture notes online. Your answers should be double spaced, no more than one page per answer, in 12 point Times New Roman. Your full name should be at the top of the document of each page. You do not need to rewrite the question; just put the answer for question 1 on page 1, question 2 page 2, etc. The rubric is listed as sub-sections (a) to (c) after each question, but please don’t literally answer each question with bullet points. These are meant to be expressive coherent readable essays. Beautiful prose.

  1. The authors say that classical writers believed prices were determined by supply and demand but that they also believed in the labor theory of value.  How can those both be true?  
    1. Define labor theory of value and how it differs from “supply and demand”.
    1. Briefly mention what, if any, Smith, Malthus and/or Ricardo wrote abt that question.
    1. Explain if they seem to think there is a tension (remember they are not the same person, and so what one person meant by “labor theory of value” you can’t assume the other did) and if so how they reconciled that.
  2. David Ricardo has a model of rent. What are the assumptions of his model, what determines the amount of rent paid to landlords in equilibrium and what does this imply about whether we should consider rent a part of social cost or social surplus. If you want to include a graph, it does not count against the one page requirement. Put it at the end in an “appendix” labeled.
    1. It’s a model, so models have two parts: assumptions and equilibrium processes. You need to first explain the assumptions, the process and the equilibrium. For instance in supply and demand, competition and homogenous goods causes price and quantity to be determined. What is being determined in the rent model and how?
    1. Then answer this question regarding “distribution” of surplus versus social cost in Ricardo’s model.
  3. How do gluts form in Malthus’ model, and what tension does this have for his “Population Theory”?
    1. What is a glut? Why does it occur? Specifically describe the equilibrium process (i.e., the math model).
    1. Define his population theory and comment on its relevance if you think there is any for gluts.
  4. According to the authors of our textbook, Adam Smith’s view of capitalism is that it is unique historically. What is the role that property rights play in Adam Smith’s understanding of production and distribution within capitalism?
    1. Discuss the historical stages of societies according to Smith
    1. Since exchange and production have always been with us, why does Smith then think “capitalism” is different?
    1. Focus on how the production process connects to what people get paid under capitalism.

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