University of Texas - Arlington
ECON 3305 – LAW AND ECONOMICS
FALL 2025
Todd Gabel
Midterm II
Answers
1. [5 points] With Nicole Kidman and Keith Urban reportedly pursuing a divorce last
week, the term “gray divorce,” reflecting divorces had by people in their 40’s, 50’s and
60’s, has become more common in the media. A marriage expert suggested this is due to
people living longer—a hundred years ago it was unexpected to have to live with
someone for thirty years. While research does show that “gray divorce” is a recent
development—it became more common beginning in the 1970’s—what “legal reason”
might be a better explanation? Using an efficiency argument, discuss how the two
explanations—your explanation and the one offered by the marriage expert—for the rise
in grey divorce may be, in fact, the same explanation?
No fault divorce. This could be, in effect, the same explanation because the law
changed, according to theory, presumably because the costs and benefits changed on
the ground. Things that may have driven these changes include the development of
new technologies (e.g., birth control, the automobile, etc.), increased urbanization,
changing belief systems, longer lifespans, improving labor market opportunities for
women, etc. Together, these changes may have reduced the importance of children
and the value of marriage.
2. [5 points] North Korea’s starving population has resorted to eating Siberian tigers to
survive. The wild animals are harvested for food, skins and furs, while their bones, paws
and dried organs are sold for use in traditional remedies. These animals are expected to
eventually die out from the region. Interestingly, this is not the case for deer and
pheasants, nor for bears and otters, which also have very high value like the Siberian
tiger. Why might this be?
Deer, pheasants, bears and otters are supposedly farmed in North Korea. Equally
(or even more) valuable tigers are not. It must be, therefore, that farming the tiger is
much higher cost—otherwise they would be privatized. As it happens tigers are
dangerous, aggressive, don’t adapt well to confinement nor breed while so confined,
and are massively expensive to feed and contain, not to mention harder to catch.
3. [5 points] In the early feudal period England there was no unemployment—only work
and leisure. In terms of work, serfs gave the lords three days of labor, and then usually a
portion of the produce from the fields (grain, livestock, etc.). Employment for wages was
rare. Even rarer were market-negotiated wages.
a. How were serfs “paid” during this time? Explain in a couple sentences.
Serfs exchanged their labor in exchange for protection and access to the legal
system. By gaining the safety of the manor, serfs were able to work their own
(public) lands with less fear of being overrun.
b. Serfs eventually had their labor dues commuted in return for money payments. Serfs
were generally able to earn money by selling excess produce from their own small plots
of land at local markets. What were the main economic and demographic factors that
drove the emergence of markets during this time?
Increases in population—produced in part by the stability of the feudal system—
encouraged trade and specialization. This developed into trade fairs, markets, and
small villages developed around those activities. This safety-in-numbers brought
stability, which further encouraged the development of markets.
Eventually, markets expanded in the late medieval period to the point where it
empowered serfs to leave their feudal obligations and seek employment through private
labor contracts, despite the risks of unemployment and loss of feudal relationships.
c. Explain how your answer in (b) affected BOTH feudal lords’ incentives and serfs’
decisions that together would move Western Europe away from feudal traditions.
As populations grew, the marginal product of labor fell. This had two synergizing
effects on feudalism, making the social arrangement less efficient. First, lords came
to see serfs as a cost, not a benefit, on net. (As it happens, they pulled back on
protection services—kicking protection responsibilities onto kings, towns or hired
soldiers —as well as selling access to previously public services such as the courts,
mills, and forests). Second, the now lower paid serf would want added freedom to
seek added employment, and at the best rate of pay.
By the sixteenth century employment for money wages via private contracts was well
established. Interestingly, maximum permissible wage rates were set by the government,
and potential employers were exhorted not to offer more and were punished if caught.
d. Think about major events the preceded the period. Why would the government impose
maximum wages (in contrast to today, where minimum wages are more common)?
In the 14th century, Europe was devastated by the Black Death, which wiped out
around a third of the population. This created a sharp scarcity of labor, raising the
marginal productivity of workers and driving wages up. In response, governments
issued laws to cap wages. By the sixteenth century, these kinds of wage controls were
still in effect. Lords and employers—unable to fully reassert feudal control due to
increased competition and weakened manorial structures—relied instead on legal
caps to contain labor costs. Over time, these pressures encouraged substitution
toward capital—such as tools, ships, and improved infrastructure—which gradually
expanded the European capital base and supported long-run gains in productivity.
4. [5 points] Consider the following lyrics of the song “Won’t Get Fooled Again” by the
rock band The Who.
The first verse goes like this:
We'll be fighting in the streets
With our children at our feet
And the morals that they worship will be gone
And the men who spurred us on
Sit in judgment of all wrong
They decide and the shotgun sings the song
What do you think the writer Pete Townsend is trying to say here about that nature of
institutional change? How might this depiction challenge the way people today like to see
themselves—as empathetic, reasonable, and humble—especially during times of social
upheaval?
Institutional change is often violent. While, revolutionaries win support of the public
by presenting themselves in a favorable light, revolution is rarely a bloodless affair.
The lyrics appear to question how people behave in conflicts that devolve into
either-or scenarios. What immorality would “good” people resort to when
significant institutional change is upon them—or, indeed, when such change is
driven by them?
5. [5 points] This question continues problem 3 above, but can be answered
independently.
The song “Won’t Get Fooled Again” continues into the second verse:
A change, it had to come
We knew it all along
We were liberated from the fold, that's all
Is this verse consistent with economic theory and the conditions it requires for
institutional change? Briefly explain.
Institutions become inefficient when the social objective or transaction cost
problems to be overcome become obsolete. In other words, inefficiency occurs when
the costs of the institution come to outweigh the institution’s benefits. At some point
this inefficiency is recognized by almost everyone so that change—when change
ultimately happens—will seem natural, expected, good, and right.
6. [5 points] This question continues problems 3 and 4 above, but can be answered
independently.
The song “Won’t Get Fooled Again” continues into the last part of the second verse and
into the third verse:
And the world looks just the same
And history ain't changed
'Cause the banners, they all flown in the last war
There's nothing in the street
Looks any different to me
And the slogans are effaced, by-the-bye
a. What do these lines suggest about the pace and visibility of institutional change? How
do you reconcile your answers with, for example, the fall of the Berlin Wall, which
brought down communism and ushered in presumably a new way of life? [3 points]
From a single or common person’s perspective institutional change can appear slow
and minimal—the person still has to go to work, raise a family, abide by the laws,
etc. It is only after many years—perhaps decades or more—does the change come to
be seen by this person as great or as revolutionary as promised. It could be,
therefore, that when communism ended in Europe, there were lingering elements of
this system that persisted—markets were not developed, culture had not changed,
meritocracy may have been slow to take root, etc. And so while the Berlin wall
falling had tremendous significance, the bottom line impact on people may have
taken longer to be fully realized.
The third verse continues:
And the parting on the left
Is now parting on the right
And the beards have all grown longer overnight
The references to “left” and “right” allude to political ideologies, but Townsend uses
“parting” as a play on words.
b. What do the “parting” and the “beards” likely symbolize here? How does this
metaphor contribute to a cynical perspective on the nature of institutional change? [2
points]
Parting one’s hair—now on the left, rather than the right—is no real change at all.
Likewise, with the growing of beards. It is the same person, just something small has
changed. Townsend appears to be warning that a change in the ruling class is
superficial—a theme he’ll return to later in the song. In that spirit, he suggests
people will be fooled by revolutionaries—or the leaders for institutional change—
into thinking that the “grass is always greener” on the other side.
7. [5 points] This question continues problems 3, 4, and 5 above, but can be answered
independently.
The song “Won’t Get Fooled Again” has the chorus:
I'll tip my hat to the new Constitution
Take a bow for the new revolution
Smile and grin at the change all around
Pick up my guitar and play
Just like yesterday
Then I'll get on my knees and pray
We don't get fooled again
Don't get fooled again, no, no
And the concluding, short fourth verse:
Yeah
Meet the new boss
Same as the old boss
Who are the “we” the writer’s referring to here? What might these lines be suggesting
about the promises of institutional change?
He’s referring to the common man, the average voter, the public. He appears to be
warning that, with this new institution in place, the “we” will be no better off.
Indeed, they will be compelled—by force, as it is the case with all laws—to go along
with the new system and rulers and be subject to the same or even greater troubles.
8. [5 points] Show, using an appropriate model, how wealth is dissipated when resources
are left in the public domain.
The amount of labor using the resource (here, fish) will increase from L* to L**,
causing a large deadweight loss that completely offsets any benefits of the resource.