Chicago. Economic Price Theory Prelim Exam taken by Zvi Griliches. Winter quarter 1955.

 

With this post Economics in the Rear-view Mirror adds two more preliminary exams from the University of Chicago (here, from the Winter Quarter of 1955) to its growing collection of artifacts that provide us a digital record of economics education through the years. The original document was found in Milton Friedman’s files which provide us the additional information of the names of the examination committee as well as names, together with Friedman’s own test scores and his answers to the True-False questions. Of interest to note: Zvi Griliches not only attained the greatest number of points awarded by Friedman (120 points of 185 possible points), but he finished far ahead of the rest of the pack–the second highest exam only received 86 points which incidentally was more than enough to clear this PhD requirement. The Committee failed two students and four students passed the exam for the M.A. degree. Milton Friedman appears to have been the toughest grader of the three members of the Committee.

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Economic Theory Examination Committee:
M. Friedman, chairman; F. H. Knight; D. G. Johnson.

There were 13 examinees for Economic Theory I. These included Zvi Griliches (who incidentally blew the top off the curve according to Friedman’s grades) and Walter Oi.

Griliches Interview with Alan Krueger and Timothy Taylor from June 21, 1999.
Memorial blogpost for Walter Oi by Steve Landsburg on December 26, 2013

There were 2 examinees for Economic Theory II.

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Previously transcribed and posted Preliminary and Field Exams
from the graduate program of the University of Chicago

Economic Theory I and II. Summer 1949
Economic Theory I and II. Summer 1951
Economic Theory I and II. Summer 1952
Economic Theory I. Summer 1955
Economic Theory I and II. Winter 1955
Money and Banking. Summer 1956
Economic Theory. Winter 1957
Money and Banking. Summer 1959
Economic Theory (Old Rules). Summer 1960
Price Theory. Winter 1964
Income, Employment and Price Level. Summer 1967
Money and Banking. Summer 1967
Price Theory. Winter 1969
Income, Employment, Price Level. Winter 1969
Money and Banking. Winter 1969
International Trade. Winter 1970
History of Economic Thought. Summer 1974
Price Theory. Summer 1975
Industrial Organization. Spring 1977
History of Economic Thought. Summer 1989

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Economic Theory I
Preliminary Examination
Winter, 1955
[Milton Friedman’s answers in square brackets]

Time: 4 hours.

Write your number and not your name on your examination paper. Please be brief in your replies.

1. (30 points) Indicate whether each of the following statements is True, False, or Uncertain and justify your answer briefly.
   1. [False] Production of a commodity occurs under conditions of fixed proportions. The supply curve for A shifts to the right. It is to the advantage of the owners of A that expenditure on A shall have represented a small part of total costs.
   2. [False] A firm will not carry on production at a given level of output, if one factor exhibits increasing average returns at that output level.
   3. [appears to be False with True crossed out] When a firm is in equilibrium, the ratio of the price of a factor to the marginal physical product of the factor determines the marginal cost of production.
   4. [True or Uncertain] If the demand for output is perfectly elastic, a decline in the price of factor A will always increase the demand for factor B unless A and B are perfect substitutes (only two factors employed).
   5. [True] If the demand for output is less than perfectly elastic, a decline in the price of A may either increase or decrease the demand for factor B.
   6. [False] If a monopsonist is not a monopolist, it is possible to construct the monopsonist’s demand curve for a factor.
   7. [False] If all the factors used by a firm are paid the value of their marginal products, the sum of the payments will equal the total receipts of the firm.
   8. [False] If all factors are paid the value of their marginal products, it would not be possible to increase total real output of the economy by any change in the allocation of factors.
2. (15 points) In an article on the British tobacco industry, the Economist remarked:
   “Since 1938 the industry has had to contend with a sixfold rise in the standard rate of tobacco duty, and a three- to fourfold increase in the average cost of its principal raw material—this includes the higher cost of dollar leaf bought since sterling devaluation. All eight duty increases have been automatically passed on to the smoker, but if duty is left out of account the increase in cigarette prices since 1938 has been no more than about 85 per cent.”
   What do you take “passed on” to mean in this sentence? What is its relation to the economic concept of “incidence”? What inference, if any, would you draw about the latter?
3. (20 points) Assuming that a monopolist always fixes price so as to maximize profits, can the price of a commodity ever be lower when it is monopolized than when it is competitively produced?
4. (30 points) Trace the development of the theory of consumer choice. Include in your answer an explanation of (a) the meaning attached by Smith to “effectual demand”, (b) the role assigned by Ricardo to demand in determining prices; (c) Jevons “the final degree of utility determines price”; (d) the contribution of Edgeworth, Fisher, and Pareto.
5. (20 points) It is widely asserted that workers have less “bargaining power” than employers because there are more workers than employers. Discuss.
6. (25 points) Discuss the following concepts (a) the “postponement” of consumption said to be involved in saving and investment, (b) “abstinence”, (c) “time preference”, (d) the “marginal efficiency of investment”, (e) the “marginal efficiency of capital”.
7. (45 points) For each of the following methods of financing radio and television programs, indicate how the resulting structure of programs differs from the optimum: and under what conditions, if any, it would be an optimum. In interpreting “optimum”, assume that the only consideration is direct private benefit from the programs; neglect distributional effects, i.e., treat it as a purely allocative problem; and assume that there are no such public issues involved as “education” or “indoctrination”. On the technical side, assume throughout that there are a narrowly limited total number of frequencies or channels available in any one area. Make your answer as definite as possible in terms of the kind of people whose tastes are or are not catered to appropriately, the kinds of programs that are too numerous or too sparse, etc. In answering the question, assume throughout that it is possible without cost to know exactly the number and kind of people who listen to each program.
   1. The existing U.S. method of selling time to advertisers.
   2. Imposition of an annual license tax or fee on each set; auctioning off of time to private program producers; compensation of these producers by giving to each a share of the total tax collection equal to the fraction of total listener time devoted to his programs. Assume that advertising is forbidden.
   3. Some mechanical method whereby a subscriber can receive a particular program only if he pays through a coin-box arrangement for that particular program. The programs are to be provided by private producers who receive the payments, who buy time on the stations, as in the preceding case, and who can determine the amount charged for the programs they produce. Once again, assume that advertising is forbidden.

 

 

ECONOMIC THEORY II
Preliminary Examination
WINTER 1955

Time: 2½ hours.

Note: Write only your number, not your name, on your examination paper.

Answer question 1, and two others.

 

1. Using the Table below, explain the variations in the real income, the price level, the velocity of circulation, the government and private investment, the rate of unemployment, the ratio of savings to income, and whatever else you consider significant.

TABLE

The following figures are based on the Economic Report to the President, 1955.
Note: (a) All figures except those for item A are expressed as percentages of the corresponding 1937 figure; (b) item F is defined to be equal to “gross private domestic investment” plus “government purchase of goods and services” plus“net foreign investment”, all in 1947 prices.

	1929	1933	1937	1941	1945	1949	1953
A. Unemployment as percentage of civilian labor force	3.2	24.9	14.3	9.9	1.9	5.0	2.5
B. Civilian employment	103	84	100	109	114	127	134
C. Demand deposits and currency (non-deflated)	89	67	100	164	346	376	441
D. National income (non-deflated)	119	55	100	142	246	294	414
E. Consumer price index	119	90	100	102	125	166	186
F. Gross national product less consumption (in 1947 prices)	100	41	100	160	281	165	262
G.  D/C	134	82	100	87	71	78	94
H.  D/E	100	61	100	139	197	178	222
I.  H/B	97	72	100	128	172	140	166
J.  F/H	100	67	100	115	146	93	118

2. It is often said that the U.S. economy is less likely to suffer a severe depression today than it was twenty or thirty years ago. List and discuss major changes which have taken place which bear on this statement.
3. Suppose the tax on capital income (dividends, interest) is increased. What will be the effect on the demand for cash if the tax proceeds are spent on: (a) aid to foreign countries; (b) federal contribution to medical aid in the United States.
4. In the Confederate States, the ratio of bank reserves to deposits grew rapidly during 1862-64. This ratio also grew in the period 1933-37 in the Unites States. Explain these phenomena. Evaluate the action taken by the Governors of the Federal Reserve Board in 1936 and 1937, when they raised the required minimum reserve ratio.
5. The stock of money (currency and demand deposits) per capita was about 800 dollars in June 1953 as against about 100 dollars in June 1910. Explain the increase.

Source: Hoover Institution Archives. Milton Friedman Papers. Box 76. Folder 2 “University of Chicago, Economic Theory”.

Image Source:  Zvi Griliches. University of Chicago Photographic Archive, apf1-06565, Special Collections Research Center, University of Chicago Library.