FinalExamANSWERS - Economics 508 Winter 2005 Professor...

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Economics 508 Winter 2005 Professor Fleisher Final Examination 36 points There are 3 major questions and 12 subquestions. Limit your answer to each subquestion to 100 words or less. 1. (24 points) Here are some quotations from an article, “Does Privatization Enhance or Deter Small Enterprise Formation?” by Daniel Berkowitz and Jonathan Holland (Economics Letters 74 (2001), 53-60. “ In post-socialist economies, there has been a rapid entry of small legally registered start-ups and spin-offs from state-owned enterprises (hereafter denoted small enterprises) into construction, trade, food establishments, commercial services and small-scale manufacturing. …Small enterprise entry has been explosive in China and Poland, which are the most rapidly growing transition economies, while entry has been slow in Russia, which has contracted during the transition.” Based on these remarks, answer the following questions, basing your answer to readings, lectures, and other materials studied in this course. a. Is the positive association between the emergence of small enterprise and economic growth in transition consistent with the arguments in Hayek (1945)? Be specific in describing Hayek’s arguments and how they might relate to small enterprises. Hayek argued that information available “on the spot” to individual producers and consumers provides accurate signals of costs and values to guide production and consumption toward their optimums. Small enterprises are well-positioned to transmit such information and, if they are operated for profit, have the incentive to do so. Hayek does not mention small enterprises as such, although his are certainly consistent with this relationship. A thorough examination needs to show that the number of small enterprises is a cause of growth, not simply a result of growth. (Moreover a planned economy with over-production should
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FinalExamANSWERS - Economics 508 Winter 2005 Professor...

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