1. What  was the Neolithic Revolution?  Explain carefully what basic changes caused this "Revolution" and what basic changes in property rights accompanied it.  In what fundamental way did society change? Why was it a necessary condition for the emergence of complex societies and civilization?  Why is it called the "Great Divide?"

How did this increase specialization and division of labour?  Why did it cause the emergence of bondage in many places?  What would the alternative to bondage be under conditions that prevailed following the Neolithic Revolution?

2. What is meant by the "scattering of strips" in medieval agriculture?  Explain how this was a response to conditions existing in Europe during the Middle Ages and what its advantages were under these conditions.  (Please give two distinctly different advantages.)  What factors would cause this practice to disappear?

3. Firms have two sources of economic profit.  First they can be protected from competition, and in return, politicians and bureaucrats are likely to expect favors and political support.  Second they can innovate--introduce new products, open new markets, and/or make quality improvements or cost reductions, thereby gaining an advantage over rivals.  Without protection, the resulting excess profits are likely to be temporary until rivals catch up or leapfrog, but can be renewed via new innovation.

Suppose a firm introduces a profitable innovation that reduces production costs.  As a result, rival firms suffer wealth losses, and some will eventually go out of business, although historically, the old production methods usually survive for a time before disappearing completely.

Show that society receives a net gain from this innovation, in the sense that the benefits to society of the innovation are greater than its costs, even if we don't count the innovator's profits and even if the innovator is able to exercise some market power after innovating.  Then explain why a government might still try to suppress the innovation.