Economics 3004 Exam 1 Study Guide Spring 2018

Exam 1 will be held in class on Tuesday, Feb. 20. The exam will be
closed book and closed note. Please bring a black or dark blue pen. You
may use colored pens for any graphs or drawings.
The exam will cover Topics 1 to 3 of the course plan. You should be
familiar with the course readings, lectures, and slides. The below study
questions will assist you in your exam preparation.
Topic 1
1. What is economic history? 

 A subject area of research that applies economic theory and quantitative analysis to the
study of history.
 Meshing of economics and history, requires both detailed knowledge of history, and
quantitative methods/economic models.
 Concerned largely with Economic growth/stagnation, people within these societies,
standards of living, politics, institutions, and markets

2. How do heights illustrate important concepts of economic history? 


 Heights can estimate an approximate standard of living in times where there may not be
mortality data or GDP to measure such things.
 There has always been height data (army data) so it is usually available, whereas census
data may not be.

3. What methods do economic historians use? 


 Counterfactual analysis: what would today have been like without the policy
 Attention to non-transient phenomena, long-term trends, and patterns
 econometrics
4. Why is economic history relevant to understanding issues of diversity and 
 inclusion? 

 Economic history is at the heart of lots of diversity and inclusion questions
 risky to base conclusions on transient phenomenon,
 past can be used as experimental field,
 historical data is (usually) readily available,
 data for developed worlds can help understand underdeveloped worlds,
  role of past helps us to understand today (QWERTY Keyboard)
5. How do history and economic history differ? How can the two fields 
 complement each
other? history is just the study of the past, economic history is the study of how
the economics of the time affected historical events. History tends to study
specific phenomena. Historians are able to provide context to economic events as
economists are able to provide the economic theory behind why such events may
have happened.
6. What is counterfactual analysis? 

o Counter-factual analysis: what today would have been like without a policy
vs. today with the policy
o NOT yesterday vs. today
o X would’ve happened instead of Y
o Bob Fogal came up with this idea- railroads
 Researched how to move cargo or people w/o railroads
 Where canals or roads would have been built instead
 $w/o railroads- $w/ railroads = counterfactual analysis

7. What types of data do economic historians use? Why? 


o Agricultural data, census data, height data,
o Need to get creative because there has not always been records of things
so economic historians find data and extract conclusions from that data
o Diseases: yaws found near ocean  shows that Europeans had contact
with Native American

8. What is a path dependent process? Does path dependence guarantee that the most efficient
method is adopted? Why or why not? 

 Path dependent process is the idea that important influences upon the
eventual outcome can be exerted by temporally remote events
 These events may also be chance events
 Does not guarantee most efficient method: DSK keyboard was proven to
be more efficient but people could not switch to it bc of time and money it
 would cost. No one would learn it bc no one hiring would have a DSK
keyboard probs. Big cost-benefit issue. So kept to QWERTY keyboard
9. What role do Technical interrelatedness, Economies of Scale, and
Quasi- irreversibility of investment play in determining the
adoption of a technological standard? 

10. How does the QWERTY keyboard illustrate the concept of path dependence?
 The qwerty keyboard was adopted and widely accepted into society, although it
was not the only keyboard
 One guy proved he could type super fast on it, went around united states proving
this, today we use QWERTY keyboard
 If DSK had been adopted before it, then we could have used that one, it just
happened that the path society took was the QWERTY keyboard one.
 It persisted bc:
o Technical interrelatedness: system compatibility between hardware
(keyboard) and software (typists skills) buy new keyboards, learn new task
o System scale of economies: each time someone used the QWERTY
keyboard, the user costs fell, each person’s decision to use it affected the
next persons likelihood of adopting it too
o Quasi-irreversibility of investment: once you agree on something, too
costly to switch
11. What was the point of the Lamoreaux reading? How does the reaper example illustrate
this? How does the QWERTY keyboard example illustrate this?
 It was to say that historians or economists alone cannot study economic history,
those who know economics can explain why things happened and those who
understand history can provide context for why economic decisions may have
come up.
 Reaper: Paul David said a farm would adopt reaper technology if its costs<costs
for hand picking crops. Therefore, larger farms could afford a reaper bc of
economies of scale and more crops/land etc. it made sense for them. People
criticized this solely economic approach because he did not consider that farms
could share reapers or areas could share reapers (Which is what happened)
 QWERTY: without knowing this historical background of this example it would
be difficult to understand why the QWERTY keyboard was adopted, without the
economic background, it would be hard to understand why it prevailed.
Topic 2
1. What is Holmberg’s Mistake? 

 It is the mistake of thinking what is, is what has always been, bc theres no written history
to prove otherwise
 He lived among the N.A. in Bolivia for a bit and he thought that they were very
primitive: no clothes, no houses, limited knowledge on fire etc
 What he didn’t know though was that a smallpox epidemic wiped out a huge portion of
these people, leaving only 150 people left (led to genetic deformities)
 In addition, cattle ranchers had also pushed them out of their land
 Holmberg had only seen these people after they had been demolished and devastated and
just assumed they had always been this way.
2. What is the Clovis Model? 

 13,500 years ago, hunter gatherers followed big game from Asia to Alaska (via the
Bering land bridge)
 Ice age ended and they got stuck in Alaska so they populate the area
 They know this bc they found clovis points dating back 11,000 years ago used for
hunting
 This didn’t work that well bc most of the clovis points were found on the east coast (not
where you;d expect)
 New theory: footprint in the ashes (found in S.A) and knife marks on animal bones
3. When and how did people arrive in the Americas? What kind of evidence is there? 

 People arrived possibly though the Bering bridge, as stated above, or by sea, or by land or
sea
 Footprint in the ashes
 Used clovis points
 Also used mounds to date back when they were built
4. What is the Pleistocene overkill hypothesis? What theories address the extinction of the
megafauna? 

 Overhunting: Killing animals follows the path to where humans are
o When humans encountered large animals they were slower and stay in herds
o This could have caused the large animals to be overhunted
 Climate change: the land became drier and warmer, less food, now winters and summers
o Difference in big and small animals because of this
o Overkill hypothesis is a little better
5. For the Paleo, Archaic, and Woodland periods, describe the below features of 
 the
economic and social systems. Your answers should include specific references to
these periods in Southwest Virginia. 

a. Main types of economic activity, including subsistence activities, trade, labor specialization,
and role of material objects 

 Paleoindian (800BC): hunting in family-based groups (large animals during this
time period that no longer exist)
o People start to attain possessions and economic organizations (2 families or
more) exchange goods and gifts
o Religious beliefs underscore economic activity
o Cahokia
 Archaic (8000-1200): labor specialization, increasing concentration of material
objects, less hunting more gathering
o More rotational life between base camps and mountains bc flooding at shores
(climate change) [residentially settled, home base,no home]
 Woodland (1200 BC-1600 AD): social and cultural divergence
o Chaco canyon
o Poverty point
b. Standard of living, including health 

c. Types of societal organization 

 Paleoindian: Women start to do food-prep, men hunt, collection of kin groups for
trade
d. External and internal factors that contributed to economic development 
 and/or change 

 Paleoindian: megafauna die, global warming/environment change
 Archaic: more modern plants and animals, new tools to process plants,
domesticate plants
6. Why does Diamond identify agricultural as humanity’s “Worst Mistake?”
 It increased labor time, decreased nutrition, decreased leisure, created organizations that
oppress others, increased disease
What specific evidence does he provide for a decreasing standard of living after the
adoption of agriculture?
 He says it made people shorter (decreased food diversity + increased work)
  decreased enamel 50%
 4x increase anemia
 3x increase in bone lesions
 increase in spine issues
 Life expectancy decreased from 26 to 19 post agriculture
How did changes in social organization contribute to the decline? What biological factors
contributed the decline?
SOCIAL CHANGES:
 Increased class and gender division
o Cahokia elites build wall around their community to protect themselves but not others
in their community
 HG and farming clashed lifestyles
o More people in Ag society so more power over HG society
BIOLOGICAL CHANGES
 Less varied nutritional inputs- only farming maize
 Increase surplus causes strong to steal from weak
 If crops fail, you don’t eat (in HG society that is not an issue)
 Larger communities that are more dense  increase in disease (epidemics arise)
 Birthing space gets shorter ( 2 yrs vs 4 yrs)
o Have a baby lose a tooth, less calcium bc less varied food source so it gets leeched
from your teeth to provide for baby
Why did humanity adopt agriculture if, as Diamond argues, it reduced the standard of
living? 

 People became more connected and organized, it allowed trade and technological
advances,
 As more people moved towards ag society, the HG no longer could fight the ag
society for resources and land
7. What are the estimates of pre-1492 Native American population? How did population
size change over time? 

 Estimates: 20 million Indians
 The Indian population decline in the century or two following columbus’s arrival is
estimated to have been as large as 95%
8. How are food production, settlement density, and specialization related? 

 More agriculture and food production meant people are settled
  When people are settled they have more children  population density increases because
everyone needs to stay around the same area so they can survive
 Specialization of one crop also meant that if that crop failed then people were going to
starve or steal to prevent starving
9. What was Cahokia?
 Cahokia was considered the greatest city north of the rio grande ca 1250 AD having a
population of at least 15,000
 This was where monks mound was which was the biggest mound in this community
What role did Cahokia and its residents occupy in the Mississippian economic system?
 They cleared land to grow maize
 The storage of maize may have affected the organizational power
What is its significance in the economic history of North America?
 It shows that large cities were possible then
 It shows how elite can ruin a city
 It shows how people can change the land and environment around them to please their
What forms of economic, religious, and social activity were there?
 Religious leaders (elite)
 People loyal to the leader forced immigrants to do construction projects (sometimes there
were massacres)

Changed course of river, cleared most of the land around them for fuel or to grow maize

When floods came elites freaked and ordered a palisade to be built to separate them from
the peasants
Why did it eventually fail? What role did institutions play? 

 It eventually failed when the floods came
 The elites freaked out and ordered a bunch of useless construction jobs (palisade with
huge gates, put stage on/near monks mound)
 Earthquake came and destroyed many houses and buildings
 A civil war broke out and that was the end of Cahokia
 Demise happened because rulers were too concerned about maintaining power rather than
helping their own people
10. What is the Shannon site?
 this is a site in Blacksburg VA (where the country club is now), it was excavated and
found 100 people were buried there
What kind of data does this site provide about the standard of living of the
American Indian population in the area?
  Houses: more permanent settlements, different layers of mud, fences around homes
 Burials: lots of infant deaths (still lack of health technology), lots of people buried in one
place means more settled, more leisure time to make more offerings
 Skeletons: syphilis and yas indicate trading (syphilus is debatable about being new or old
world disease), many abnormalities (intro of maize into diet = more cavities, 1/3 people
in Shannon site had cavities, means they farmed lots of maize)
 Shell objects: people traded on coast and brought things inland, no evidence of European
traded goods yet (helps with time frame)
 Ceramic Objects: pots and dishes (long term food storage, more settled people), pipes
(tobacco, means agriculture was present)
 Food Remains: corn and beans (agriculture), killed vicious and tame animals (means
stayed in one areas)
 Birds: killing birds means technological advances, transition from spear to bow and
arrow
 Mussels: very abundant, saved the shells (meaning they weren’t so worried about
moving)
What does the site tell us about health, economic activity, and societal organization?
Be specific. 

 Skeletons tell us that the people grew maize (cavities)
 Food remains tells us that they moved from hunter gatherers to agriculture (beans, maize,
tobacco)
 Ceramic objects shows that they stored things (pots) and that they were more settled
 Houses with multiple layers of mud and palisades around them also showed they were
more settled
11. What is the Malthusiam growth model?
 It is a model that asks why didn’t an increase in technology (back then) not lead to an
increase in the standard of living?
 Says lower death rate= higher income= higher birth rates
 Technology  wages  Birth Rate and death  Labor Supply  wages
 This timeline puts you right back where you started in the long run
How does it illustrate the interrelationship between productivity, population
growth, and the standard of living? 

 The relationship is shown above, but increasing productivity does not always lead to a
higher standard of living.
Topic 3
1. Who are Perecute and Atahulapa? How does each man illustrate the American Indian
response to European exploration and settlement in the Americas? How and why
did their responses differ? 

 Perecute: helped guide the English on a voyage to West VA to. “find water”
o Did NOT resist invasion
o Remembered as a great man in history
o He helped to hunt and guide them on this journey as well as be a translator
o He helped them find the farthest land west at the time
 Atahulapa: Emporer of the Incas, wouldn’t give in to Spanish invaders
o Resisted invasion
o At this time the incan territory was huge, they had a lot of gold too
o Atahulapa hears that there is a European close and he sets up a trap for them
o Francisco Pizzaro (the European) arrives and the Incans are fully armored ready for
war
o Spanish read El Requiremento, offer Atahulapa a bible and he rejects it, battle follows
 The Spanish read “El Requiremento” when they handed him the bible
 This asked the Incas to acknowledge the church is the supreme ruler of all
 If the Incans don’t recognize this then the Spanish can kill them
 If they do acknowledge the church, the Spanish own them
 Atahulpa slapped bible to ground and battle broke out
o Spanish had guns, horses, swords so they won
o Atahulpa, desperate at this point, offer the Spanish a room full of gold if they leave
o They strangle him and take the gold
o Incan empire falls
2. What is the Doctrine of Discovery? What is El Requerimento? How does it relate to the
Doctrine? 

 Doctorine of Discovery: legal claim to taking land
o head of church said sure go conquer those lands as long as their not Christians
you have the right to do this
o this starts the crusades and ends with colonization
o this is how English colonized places
 El Requiremento: asks indigenous people to acknowledge the church is the supreme
ruler of all
o If they don’t: Spanish can kill indigenous people
o If they do: Spanish now own them and their land
  They both require the indigenous people to denounce their previous religion and adopt
Christianity and also say that now “the church” the English or Spanish own the land
3. What is the Battle of Cajamarca?
 This is the battle of the Incans versus the Spanish in 1532 (one with Atahulapa)
 Spanish had edge with Guns Germs and Steele
 Diamond believes the division was caused by geography
What do the accounts of the confrontation suggest about the living standards, social
stratification, and technological developments of the Incas in comparison to the Spanish?


 Incas: Hunter-gatherers, less technologically advanced?
 Spanish: Agriculture, had guns, horses, steel
4. What explanation does Jared Diamond give for the economics disparities between
developed and undeveloped nations? How did “guns, germs, and steel” contribute to
Europe’s dominance over the Americas? 

 Diamond says it is due to geography
 Crop Domestication:
o The fertile crescent had mild wet winters and dry hot summers, a lot of
pollinators, differing food sources can grow there (carbs, protein, fruit)
o South America has teosinte (pre-curser to maize), sumpweed, and goosefoot
(latter 2 both allergens). Seeds were small, got beans but only closer to Columbus
time so not that helpful
 Animal Domestication
o The fertile crescent has many animals that are possible for domestication, you
want them to be docile and eat whatever
 Positives: meat, leather, fertilizer, labor, army, transportation, By-products
 Negatives: DISEASE- smallpox moved from cows to humans, flu,
measles, aids
 Milk maids developed immunity to smallpox, people saw link, created
first vaccine.
 Having chickens in house because of safety for them (so no one steals
them) spread germs way quicker, overtime populations developed
immunities to those diseases
 Europeans therefore had immunity to diseases that N.A had never been
exposed to (90% N.A killed by smallpox)
 o Americas: only 5 animals were domesticated (turkey, alpaca/llama, guinea pig,
duck, dog)
 These animals were never in large enough herds or close enough
proximity to transfer significant diseases to humans
 In Americas people still lived in small populations also
 People of one group may get a disease and either die or get immunity.
 That means the disease dies with the person and in turn it dies in that tribe.
That means the next group of children will not have immunity to it, and
also, they cannot pass on the disease to someone else
 Orientation
o Fertile Crescent: Europe is oriented east to west and crops spread better that way,
sun hits the same areas in East to west
o Americas: oriented north to south so crops don’t spread as well, sun hits at very
different points so it’s hard to grow same crops in north and south, there’s a choke
point in the U.S. so its hard to travel between the two
 all of these things lead to the Americas not adopting agriculture/staying in
small groups/communities
 Technology
o You need cities for advanced technology
o Fertile crescent had their own language, need elite group to develop writing, need
high population density for writing to occur (some need to have leisure time to do
it)
o Steel: people needed to experiment to create steel, need leisure time to do this, in
the Americas there was little leisure time (usually only hunting and gathering)
o There were ships in Europe not in the Americas
5. What is the distinction that Diamond draws between proximate and ultimate causes? 

 Ultimate factors: geography
 Proximate: guns steel swords
6. How do the following fit into Diamond’s explanation to question (4)
 Food production: crop domestication
 Germs: high population density and agriculture caused more diseases to be possible,
animals we had didn’t really carry as many diseases as livestock (cattle) animals 

 Technology: need leisure time for this, need cities
 Political organization: high population density and cities leads to political organization


 Writing: created 3 times: fertile crescent and sumeria had their own languages bc you
need elite for this who have leisure time to develop writing
 Geography: east-west vs north-south. East west facilitates trade, north south nots as
much
7. What is a “reversal of fortune?” Why did this reversal occur in the Americas? What role
did institutions and geography play? 

 Overtime those who were much better than the U.S. became a lot worse off
 Institutions: govern all social interactions (formal like laws and informal like social
norms)
 Types of institutions:
o Ones that defend property rights
o Ones with democracy
o Ones that correct the coordination problem
 Institutions that maximize social surplus are preferred by people
 If a small group chooses institutions then they will not be efficient and only good for that
small group of people.
 Institutions can constrain some in order to serve the welfare of the small group it serves
 Institutions tend to be an elite group
 Developmental Institutions: encourage investment, growth, and productivity
 Predatory: extract resources for benefit of a few

8. What is mercantilism? How does it differ from the views towards trade that predominate
among economists today? 

 Merchantalism is the idea that the more money you have, the more power you have
 The Spanish became obsessed with this idea and set up an entire system to protect their
gold
  Wanted to maximize exports and minimize imports, colonies allowed countries to
minimize their imports because they would extract them from the colony they conquer
9. How did mercantilism influence British policy towards the Colonies? How did Britain
use the Colonies to accumulate gold and silver—even though there were no known
sources of gold or silver in the Colonies? 

 England was late to the game so they couldn’t extract gold or silver but they are able to
use the land in America to grow crops
 Wanted to get rid of their trading partners but have everyone buy things from them
 That is how they were going to extract silver and gold from the colonies
 In Jamestown the British just cared about maintaining population (even as people were
dying quickly)
 People came to Jamestown and everyone just wanted to find gold and no one wanted to
grow or find food
 People found fools gold, realized it was fools gold, more people came over to help
determine if it was real gold, more people are just dying straight up in Jamestown at this
time
 English were determined to do something with the land so they just kept sending people
over hoping the colony will become useful
10. Which countries do Sokoloff and Engerman identify as economically successful?
Which fell behind?
 Successful: Usa and Canada
 Unsuccessful: Caribbean countries (Haiti was at one point the richest country)
What factors do they believe fail to explain current economic performance?
 National heritage alone
 Being a British colony (USA and Canada did well, but other Caribbean colonies did not)
Or being a Spanish colony (some colonies did well)
What categories of New World colonies do they identify?
 Factor endowments: what a place has to offer as of resources, people, environment, etc
 Institutions
o Focused on how extremely different the environments in which Europeans
established colonies may have led to societies with varying degrees of inequality,
and how these differences may have persisted over time and affected the course of
development through their impact on what institutions evolved
 All began with abundance of land and natural resources relative to labor
How did their initial conditions determine levels of inequality?
 Three types of colonies:
o Sugar and Minerals (gold and silver)
 Very valuable, had lots of indigenous people
 Those who produced sugar and other highly valued crops were most
reliant on slaves
 This caused a huge wealth gap because there were so many slaves and not
as many owners
 This led to institutions where the privileges of the elites were protected
and restricted opportunities for the majority of the population
 This allowed the continuing of the inequality of wealth

o Land (corn, tobacco)
 Soil didn’t allow them to grow these popular crops like in the west indies
 These products are not as valuable
 Many indigenous died from disease, not many to start out with
 Caused much labor to be from Europeans and not slaves
 Elite groups were harder to form here because there was not a solid way to
get a lot of money
 Corn and hay are not good for large scale operations at this time,
encouraged spread of wealth which leads to a more equal society than the
other two (minerals and sugar)
 Institutions based on different economies
o In societies with greater inequality to begin with (minerals and sugar) the
institutions were able to establish laws that insured them disproportionate share of
power which allowed them to establish laws rules and policies that advantaged
elites only
o In societies where there was more homogeneity (Land), it was harder for an elite
group to institutional unequal distribution of power and therefore these societies
have more equal treatment and opportunities to members of the population
o Land acquisition was easy in places like US, and crops grown were not able to be
grown on a large scale farm
o North America had more open social order
 more people could vote bc of less ristrictions
 more people could own land
 had a higher literacy rate than southern countries at the beginning (others
adopted free schools over time)
 o South America had a more closed social order
 More barriers to voting (wealth and literacy requirements)
 Slower to organize schools, not willing to fund them themselves
How did inequality and institutions interact to influence economic growth? 

 Inequality stifles economic growth and productivity by restricting opportunities for
certain groups of people while providing them for others
 Where elites are sharply distinguished from the rest of the population there is a restriction
of competition which leads to a decrease in productive output and decrease in GDP

11. What are institutions? What two types? 


 Formal: rule of law, legal system
 Informal: religion, social norms,
12. How do institutions affect outcomes? How are they formed? 

 They can either encourage investment, growth, and productivity
 Or they can extract resources for benefit of a few
 Formed: some group will select the institution, this may be a small group of people and in
those cases the institutions will not be efficient
 They can also constrain individuals to benefit elites
13. What are developmental and predatory institutions? 

 In notes above
14. How are institutions and economic development interrelated? 

 Strong institutions that represent and protect a large group of people will be more
prosperous than those that only represent and support a small group of people
15. What three theories did we discuss that explained economic disparities between
nations?
 Diamond
 Sokoloff
How does each theory explain inequality?
What evidence supports each theory?
What is each theory’s weakness? 

 Diamond: choke point: still possible to trade, prevented animal domestication