Category: Microeconomics

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Exam Questions Microeconomics Princeton Suggested Reading Syllabus

Princeton. Value and Distribution Theory. Readings, Exams, Sample Questions. Baumol, 1976

This post adds William J. Baumol’s reading list and examination questions to the stock of core economic theory material transcribed and posted here at Economics in the Rear-view Mirror. For a contemporary comparison I include links to the four half-semester courses of microeconomic theory required of my cohort at M.I.T. a half-century ago. 

________________________

Cf. M.I.T. core microeconomic theory
1974-75

Bishop

Weitzman

Varian

Samuelson

________________________

Core graduate economic theory courses
Princeton, 1976-77

Fall Term
  1. Microeconomic Theory: Value and Distribution. Baumol (First class Sept. 14)
    M 10:40-12:10 and Tu 10:40-12:10 in Rm 5 WWS
  1. Macroeconomic Theory: Income Determination. Gersovitz.
    W 10:40-12:10 and F 10:40-12:10 in Rm 5 WWS
Spring Term
  1. Microeconomic Theory: General Equilibrium. G. Faulhaber
    Tu 10:40-12:10 and Tu 1:00-2:30
  2. Macroeconomic Theory: Inflation and Growth. D. Jaffee.
    M 10:40-12:10 and F 10:40-12:10

________________________

PRINCETON UNIVERSITY
Department of Economics

ECONOMICS 501
Microeconomic Theory:
Value and Distribution

Fall Term 1976

Professor W. J. Baumol

*On Reserve

MAIN REFERENCES

Henderson, J. M. and Quandt, R. E., Microeconomic Theory, New York: McGraw-Hill, 1958.

Baumol, W. J., Economic Theory and Operations Analysis, Englewood Cliffs: Prentice-Hall, 1965. (ETOA)

  1. Theories of Consumption and Demand

Henderson and Quandt, Chapter 2, Sections 1 through 8.

*Hicks, J. A., Value and Capital; 2nd Ed., New York: Oxford University Press,
1946, Chapters I, II, III, and pp. 302-314.

*_______, A Revision of Demand Theory, Oxford: Clarendon Press, 1956, Chs. VII-IX.

*_______, Malinvaud, E., Lectures on Microeconomic Theory, Amsterdam: North Holland Press, 1972, Chapter 2.

ETOA, Chapters 9 and 10.

*Linder, S. B., The Harried Leisure Class, New York: Columbia University Press, 1970, Chapter VII and pp. 150-2.

  1. Neumann-Morgenstern Utility Theory.

Henderson and Quandt, Chapter 2, Section 9.

ETOA, Chapter 22.

  1. Theory of Cost and Production

*Viner, Jacob, “Cost Curves and Supply Curves,” in Stigler, G. J. and K.E. Boulding, Readings in Price Theory, Chicago: Irwin, 1952, pp. 198-232.

ETOA, Chapters 11, 12 and pp. 402-405.

Henderson and Quandt, Chapter 3.

Malinvaud, Chapter 3.

  1. Market Structure and Market Behavior

*Chamberlin, E. H., The Theory of Monopolistic Competition, 5th ed. (or later). Cambridge:
 Harvard University Press, 1942, Chapters III, IV, and V.

*Sweezy, P.M., “Demand Under Conditions of Oligopoly,” in Stigler, G. J. and K. E. Boulding, eds., Readings in Price Theory, Chicago: Irwin, 1952, pp. 404-409.

*Robinson, J., The Economics of Imperfect Competition, Chapters 2, 3, 6, 7. 11. 15. 16, and 18.

ETOA, Chapter 14.

Baumol, W. J., Business Behavior, Value and Growth, rev. ed., New York: Harcourt, Brace and World, 1967, Chapters 3, 6, 7, 8, and 10.

  1. Elements of Distribution Theory

ETOA, Chapters 17, 18, 19.

*Robinson, Joan, “Capital Theory up to Date,” Canadian Journal of Economics, Vol. 3, 1970, pp. 309-17.

*Kaldor, Nicholas, “Alternative Theories of Distribution,” Review of Economic Studies, Vol. 23, No. 2, 1955-6, pp. 83-100.

*Samuelson, P. A., “Parable and Realism in Capital Theory: The Surrogate Production Function,” Review of Economic Studies, Vol. 39, 1962, pp. 193-206.

*_______, “A Summing Up,” Quarterly Journal of Economics, Vol. 80, 1966, pp. 568-83.

*Baumol, W., “The Transformation of Values: What Marx ‘Really’ Meant,” Journal of Economic Literature,Vol. 12, pp. 51-62.

  1. Introduction to Welfare Theory

Henderson and Quandt, Chapter 7.

ETOA, Chapter 16.

Malinvaud, Chapters 4 and 9.

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Economics 501

Fall Semester, 1976

Midterm Examination

  1. —
    1. Define a quasi-concave utility function.
    2. Explain why the assumption of quasi-concavity is acceptable for ordinal utility analysis while concavity is not.
    3. State and prove any theorem about quasi-concave functions.
  2. Explain in economic terms the meaning of the result that an expenditure function is concave in prices and indicate why it is plausible.
  3. —
    1. Formulate precisely a definition of economies of scale for a firm producing n outputs y1, … , yn and
      using m inputs r1, … , rm.
    2. Explain why it is difficult to define the concept of declining average cost for such a firm.

________________________

Economics 501

Fall Semester, 1976

Final Examination

  1. Explain only one of the following:
    1. The reason microeconomic analysis uses demand curves all of whose points refer to the same period of time.
    2. The rationale of the total differentiation step in comparative statics method.
  2. The price elasticity of a straight line supply curve through the origin is __________. Give a proof of your answer.
  3. Using Shepherd’s lemma and whatever other theorems you need about expenditure functions, give a brief proof of the Slutsky theorem.
  4. Suppose wheat is produced on three parcels of land, A, B and C, and let there be fixed coefficients in the production function so that each parcel can produce exactly 100 bushels. Let the cost of producing 100 bushels on parcel A be $3, on parcel B be $5 and on C be $9. Construct a table showing average and marginal costs with and without rent for three different levels of total output.
  5. In words, explain briefly the economic rationale of the complementary slackness conditions uivi = 0 and yjlj =0. That is, why would we expect them to hold in an optimal production program?
  6. A farmer expects to harvest m bushels of wheat in August and m in September. He will sell x1 in August and x2 in September. The price in August is p1 per bushel and in September it is p2. He can also store wheat from August to September at a cost of w per bushel.
    1. Assuming that the farmer wishes to maximize his profits and that p1, p2 and m are all positive, construct the appropriate model and prove that

x2 ≥ m

p2 = v2 (where v2 is the second dual variable)

x1 = m if p1 > p2 – w

x1 < m if p1 ≤ p2 – w.

    1. In one sentence each, give an economic interpretation of the four results.

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Economics 501
Sample Exercises
[Undated]

  1. —
    1. Explain the term comparative statics.
    2. In outline, briefly describe in words the steps of the mathematical method used to derive a comparative statics theorem indicating in each case the purpose of the step.
    3. State (do not prove) one such theorem.
  2. —
    1. What is the basic premise of revealed preference theory?
    2. Use that premise to derive the Slutsky theorem diagrammatically stating explicitly where the premise enters your proof.
  3. Define:
    1. identification
    2. saddle point
    3. gross and net complements
    4. law of diminishing returns
    5. substitution effect
    6. Walras’ law
    7. lexicographical ordering.
  4. Prove that for a straight line demand curve the midpoint between its two intercepts is of unit elasticity.
  5. Draw indifference maps showing equilibrium of the consumer’s demand in each of the following cases:
    1. One of the two commodities is a diamond-studded bow tie. Our consumer doesn’t buy any.
    2. Our consumer is given a fixed amount of money to spend either on his stamp or his coin collection. He decides it is better to end up with a one-good collection rather than two mediocre ones, and spends all the money on stamps.
    3. The price of shoelaces is lowered, but the consumer buys no more laces than he did at the old price.
  6. —
    1. Given a nonlinear demand curve, illustrate graphically how the corresponding marginal revenue curve can be constructed (no verbal explanation necessary).
    2. Give a rigorous proof of the validity of your construction procedure in a.
  7. —
    1. Define the substitution effect on x of a change in the price of x.
    2. Prove the Slutsky Theorem about the sign of the substitution effect.
  8. —
    1. Define quasi concavity.
    2. Use the definition to prove one of the following:
      1. The indifference curves corresponding to a strictly quasi concave utility function can have no linear segment.
      2. A consumer with a strictly quasi concave utility function who purchases in a competitive market can have at most one optimum.
  9. —
    1. Define: corner maximum, local maximum, interior maximum.
    2. Explain the relevance of each of these for the useability of the standard tools of marginal analysis.
    3. Relate each of these to the usual second order maximum conditions.
  10. —
    1. Show how from the shape of the offer curve one can determine the elasticity of the corresponding demand curve.
    2. Discuss the statistical problems involved in the empirical estimation of the demand curve as defined in economic theory.
    3. What is the identification problem?
  11. A perfectly competitive firm wishes to maximize its total profits

T = pq – c1 x1 – c2x2

subject to the production function constraint

q = f(x1, x2)

where q is the output quantity, x1 and x2 are the two input quantities, and p, c1 and c2  are the (fixed) input and output prices.
Assume now that c1, the price of the first input, changes. Use the comparative statics methods to show that dx1/dc1 < 0. Why is there in this case no income effect, only a substitution effect?

  1. The elasticity of a straight line supply curve through the origin is ______________. Prove your answer.

Source: Duke University. David M. Rubenstein Rare Book & Manuscript Library. Economists’ Papers Archive. William J. Baumol Papers, Box 20. Folder “Economics 506: History of Economic Thought (syllabi, book orders, library mtls. etc. 1968-1990” [Note: this folder has items such as transcribed here and not only materials for Economics 506].

Categories
Chicago Exam Questions Microeconomics

Chicago. Price Theory Core Examination. Summer 1961

 

Another gap just filled in a quarter century of University of Chicago graduate qualifying exams in price theory.

___________________

Chicago Price Theory
Preliminary/Core Exams
Previously Posted

Summer 1949
Summer 1951
Summer 1952
Winter 1955
Summer 1955
Winter 1957
Winter 1958
Summer 1960
Winter 1961
Summer 1962
Winter 1963
Winter 1964
Winter 1965
Winter 1969
Summer 1975

___________________

ECONOMIC THEORY (Old Rules)
Summer 1961

Preliminary Examination for the Ph.D. and A.M. Degrees

WRITE THE FOLLOWING INFORMATION ON YOUR EXAMINATION PAPER:

Your Code Number and NOT your name
Name of Examination
Date of Examination

Results of the examination will be sent to you by letter.

Answer all questions. Time: 4 hours.

  1. Indicate whether statement is true, false, or uncertain, and briefly give your reason.
    1. A firm has a monopoly in its home market and also sells in a perfectly competitive world market; if its home-market price is 50% above the world market price, the elasticity of demand in the home market must be 3.
    2. If a multiplant firm has to produce a given quantity of output, it will never pay it to produce in more than one of its plants if that plant has decreasing marginal costs.
    3. The development of more rapid urban transport will inevitably raise the aggregate rental value of urban residential property.
    4. If the number of acceptable applicants for admission to medical schools is less than the number that could be accepted, the medical profession cannot be raising its earnings by artificially restricting entry.
    5. The rate of interest is determined by the marginal productivity of capital.
    6. If a particular commodity is subject to a special tax not imposed on other commodities, removal of that tax will always increase economic welfare.
    7. If the supply curve of a competitive industry has a positive slope, it means that the industry is subject to decreasing returns to scale.
    8. If wage rates, on the average, increase at the same rate as average product per worker, this means that the marginal return on investment declines over time.
    9. Entrepreneurs in a competitive industry may realize short term gains or profit as a result of an increase in the price of an input (due to a shift in the supply function for the input), even if the demand curve for the industry remains unchanged.
  1. A. A drug manufacturer stated that the prices of drugs sold in England were priced at about one half the price of similar drugs in the United States. The reason given for the price difference was that per capita incomes were much lower in England than in the United States and the English could not afford to pay as much for the drugs.
    Accept the factual statements as valid. Discuss the statement in terms of:

    1. Demand functions for drugs in the two countries (income and price elasticities).
    2. Whether the manufacturer could be maximizing his profits.
    3. International trade restrictions on drugs in the two countries.
  1. B. In a given competitive industry, both price and output increase between two time periods. Indicate why each of the following statements is consistent or inconsistent with the observed changes in price and output or is simply irrelevant:
    1. The industry has a perfectly elastic supply curve.
    2. The demand curve has shifted to the right.
    3. The factor supply curves are upward sloping.
    4. The industry is subject to diminishing returns.
    5. Total revenue has increased because the price elasticity of demand is greater than unity.
    6. Rents and quasi-rents have increased.
  2. A. In the effect of union-produced wage increases on prices, one economist says,

“A competitive industry (with a horizontal long run supply curve] will eventually pass all of a wage increase on to consumers in higher product prices” but “a monopolized industry, if it maximizes profits both before and after the wage increase, will not pass on the full amount of the wage increase in prices.”

Assume that the monopolized industry, like the competitive, operates under long-run constant costs.

    1. Explain precisely what “pass all of a wage increase on to consumers in higher prices” means.
    2. Is the statement for the monopolized industry correct? If so, prove it. If not, state why not and indicate any additional conditions required to make it true.
  1. B. This economist also says that the competitive industry “will regain its normal rate of profit”, whereas, in the monopolized industry, “the wage increase will lower monopoly profits”
    1. What does the word “profit” mean in these statements? in the phrase “maximizes profits” of the preceding question?
    2. Do the two statements imply a difference in results in the sense that the monopolized industry will not regain “its normal rate of profit”?
    3. Indicate briefly what other meaning or meanings, if any, does the term “profit” have in economic theory.
  2. Discuss the relation between forward (and/or futures) prices and spot prices on commodity markets and foreign exchange markets and the role of “speculators” and “hedgers” in these markets. State some of the leading theories about this relationship and discuss the kinds of evidence used in testing them.

Source: Harvard University Archives. Papers of Zvi Griliches. Box 129. Folder “Preliminary Examinations, 1957-1965”.

Categories
Chicago Exam Questions Microeconomics

Chicago. Price Theory Core Examination. Summer 1962

What would your reaction be to the remark in your exam “Remember that you are writing an examination in economic theory”? But, hey, Chicago, you do you.

___________________

Chicago Price Theory
Preliminary/Core Exams
Previously Posted

Summer 1949
Summer 1951
Summer 1952
Winter 1955
Summer 1955
Winter 1957
Winter 1958
Summer 1960
Winter 1961
Winter 1963
Winter 1964
Winter 1965
Winter 1969
Summer 1975

___________________

CORE EXAMINATION
Theory
Summer 1962

Preliminary Examination for the Ph.D. and A. M. Degrees

WRITE THE FOLLOWING INFORMATION ON YOUR EXAMINATION PAPER:

Your Code Number and NOT your name
Name of Examination
Date of Examination

Results of the examination will be sent to you by letter.

Answer all questions. Time: 3 hours. The suggested times for the various questions are guides to their weights in the grading.

  1. (60 minutes) True-False. State very briefly the reason for your answer to each question.
    1. The cross-elasticity of demand of left shoes with respect to the price of right shoes is zero.
    2. A competitive firm buying electrical equipment was not injured by the collusion of the producers (General Electric case) even if the collusion raised prices above the competitive level.
    3. If a consumer’s income rises in the same proportion as a Laspeyres index of his cost of living, his real income is rising.
    4. Duopolists with different costs cannot achieve a monopoly price without transfer payments between the firms.
    5. The marginal utility of income is not constant for a worker who increases his hours of work when the wage rate rises.
    6. If two goods are substitutes in consumption, a 10 cent fall in the price of either good will lead to the same increase in the consumption of the other good.
    7. A minimum wage law may increase the demand for labor by some firms.
    8. A competitive firm will have a more elastic demand function for a factor of production than a monopsonist.
    9. If a firm is operating in the region of falling marginal costs it must be making losses, since marginal cost is then less than average cost.
    10. A multiplant firm will schedule its output so that marginal costs are equal in all plants.
  2. (30 minutes) The stock market break of May 28 elicited many explanations. Comment upon the relevance of each of the following explanations.
    1. Stock prices had previously been too high.
    2. There was a holding back by big buyers.
    3. Inflation was no longer feared.
    4. Sellers became panic-stricken.
    5. The gold outflow, it was feared, would lead to exchange controls.

Remember that you are writing an examination in economic theory.

  1. (30 minutes) Capital formation may be defined as the use of current resources in such a way as to increase future income, and on this definition capital formation includes investments in equipment, human beings, and discovery of new knowledge. Discuss the problem of the meaning of the marginal product of capital, and whether capital as defined is subject to diminishing returns.
  2. (20 minutes) Each firm in an industry is given a license to operate, and no new firms are allowed to enter. The value of a license rises over time — does this prove that firms operate subject to diseconomies of scale?
  3. (40 minutes) It appears that the Federal Communications Commission will be given the power to compel manufacturers of television sets to build them in such a way that they will receive ultra-high frequency broadcasts (at an additional cost of about $25 per set). Then every community can have (say) a dozen channels. Will consumers be benefitted?

Source: Harvard University Archives. Papers of Zvi Griliches. Box 129. Folder “Preliminary Examinations, 1957-1965”.

Image Source: The School of Chicago (1972) as drawn by Roger Vaughan.

Categories
Chicago Exam Questions Microeconomics

Chicago. Preliminary Graduate Examination in Economic Theory. Winter Quarter, 1961

Detail of Friedman and Stigler in Vaughan's "The School of Chicago 1972"

Two things perhaps worth noting for this post. (1) The winter 1961 examination is for Economic Theory. The title of the prelim exam only morphs to Price Theory in the 1962-63 academic year, coinciding with the publication of Milton Friedman’s text “Price Theory: A Provisional Text”; (2) this exam has one, and only one, equation:

q = 100 – p.

Sputnik was lauched less than four years before these questions were written. While economic theory had not yet attained the status of “rocket-science” in 1961, let’s not fool ourselves, this is an exam designed to make or break character!

____________________

Chicago Price Theory
Preliminary/Core Exams
Previously Posted

Summer 1949
Summer 1951
Summer 1952
Winter 1955
Summer 1955
Winter 1957
Winter 1958
Summer 1960
Winter 1963
Winter 1964
Winter 1965
Winter 1969
Summer 1975

____________________

CORE EXAMINATION
ECONOMIC THEORY
Winter 1961

Preliminary Examination for the Ph. D. and A.M. Degrees

WRITE THE FOLLOWING INFORMATION ON YOUR EXAMINATION PAPER:

Your Code Number and NOT your name
Name of Examination
Date of Examination

Results of the examination will be sent to you by letter.

Answer all questions. Time 3 hours.

  1. (1 hour) Answer each question “true” or “false” and explain your answer very briefly.
    1. It is a tautology that the average costs of all firms are equal in equilibrium in a competitive industry.
    2. A cartel which allows its members to buy and sell output quotas will have a larger net profit for all firms combined than one which does not.
    3. Since all firms in a competitive industry have the same marginal costs, it is meaningless to speak of more and less efficient firms.
    4. A fall in the price of houses will increase the sales of doorbells; a fall in the price of doorbells will not increase the sales of houses; therefore Slutsky’s equation is wrong.
    5. The average size of farm has risen in recent decades in the United States and Canada. This shows that the farm enterprise is typically subject to increasing returns to scale.
    6. A specialized machine has a life of 5 years. Total returns to it in periods of less than 5 years are quasi-rents.
    7. Assume that the world demand elasticity for tin is -2, and that Bolivia produces 1/3 of the world’s tin. Therefore, the elasticity of demand for Bolivia tin is at most -6. 0.
    8. If factors of production are used in absolutely fixed proportion in the production of a particular product, the demand for each of the factors by the producers of the product will be completely inelastic with respect to price.
    9. A supply curve is a curve displaying the quantities which will be supplied at all possible prices. It follows that there is no supply curve under monopoly.
    10. If a firm is operating in the region of falling marginal costs, it must be making losses because marginal cost is then less than average cost.
  1. (40 minutes)
    1. The long run demand function for a commodity is
      q = 100 – p. The price has been $30 for several years; it now drops to $20. Half the consumers react to the new price immediately; the other half (due to habit, etc.) do not adapt until a year later. Calculate the elasticity of demand at a price of $20 (1) the first year, and (2) the second year after the price reduction.
    2. A consumer assures you that his indifference curves intersect each other. You have an unlimited number of observations on his purchases at various incomes and prices. What tests can you make of the alleged intersections?

III. (40 minutes)

    1. It has often been suggested that the demand for a durable good could be increased if “something were done about the large number of used items on the market” The practical suggestions usually are (1) a government regulation forbidding the use of items older than some specified age, e.g. declaring all pre-1950 cars as “unsafe” and withholding license plates from them or (2) “the manufacturers should buy up the used items and destroy them or export them at a loss. [sic, closing quotation marks missing in original] Discuss the consequences of these two types of policies on (a) the demand for new durable equipment and (b) the profitability to the industry of the two policies.

IV. (40 minutes)

    1. “The first impact of this policy (tight money) is the higher interest rate. Plainly the impact of this will be very different on a firm that has control over its prices and hence can pass along this higher cost as compared with the firm whose prices are given and which, accordingly, must bear the cost itself. The point need not be labored.
      “The U.S. Steel Corporation justified its price increase of 2 weeks ago by the contention that its cost had risen. In doing so it not only conceded its ability to pass higher costs, including higher interest charges, to the consumer but based its policy on the need to do so. But no such opportunity is open to the farmer or to the smaller businessman. They cannot raise their prices, for they are market-determined. They shoulder themselves the costs of this policy.”
      Analyze and evaluate this statement. Disregard the peculiar problems of monetary policy. Treat it as a question about the differential impact of a change in any factor price on a competitive firm or industry as against the impact on a monopolistic firm. Does a change in factor cost “hurt” less in one case than in the other? What do you understand by “passing the cost on to the consumer” and how does the distinction between a monopoly and a competitive industry affect this? Assume the same cost curves and the same shifts in both cases.

Source: Harvard University Archives. Papers of Zvi Griliches. Box 129, Folder “Preliminary Examinations, 1957-1965.”

Image Source: Roger Vaughan’s classic drawing “The School of Chicago 1972”.

Categories
Chicago Exam Questions Microeconomics

Chicago. Preliminary Graduate Examination in Economic Theory. Winter Quarter, 1963

 

A necessary condition for becoming a certified Chicago economist is to have cleared the hurdle of the prelim exam for price theory. With this post we fill in a gap in our fine collection of price theory prelims that has now grown to a baker’s dozen (i.e. 13).

____________________

Chicago Price Theory
Preliminary/Core Exams
Previously Posted

Summer 1949
Summer 1951
Summer 1952
Winter 1955
Summer 1955
Winter 1957
Winter 1958
Summer 1960
Winter 1964
Winter 1965
Winter 1969
Summer 1975

____________________

CORE EXAMINATION
Price Theory
Winter 1963

Preliminary Examination for the Ph. D. and A.M. Degrees

WRITE THE FOLLOWING INFORMATION ON YOUR EXAMINATION PAPER:

Your Code Number and NOT your name
Name of Examination
Date of Examination

Results of the examination will be sent to you by letter.

Answer all questions.

Time 3 hours.

  1. (60 points) Indicate whether you believe each of the following statements to be true, false, or uncertain. In each case write a few sentences explaining your answer. Your grade will depend heavily on your explanation.
    1. If the rate of obsolescence is constant over time for each type of capital equipment, a rise in the rate of interest will shorten the optimal life of capital equipment.
    2. If oranges are substitutes for apples, apples are complementary to cheese, and cheese is a substitute for butter, oranges and butter are complements.
    3. If a certain commodity is rationed and subject to price control, and there is a black market price for it, the black market price is the equilibrium price of the commodity in the absence of price control.
    4. Let Σipi1xi1 and Σipi2xi2 be the expenditure of a firm on factors of production per unit of output at two points in time. If Σipi1xi2 > Σipi1xi1 and Σipi2xi1 < Σipi2xi2, the production function of the firm has changed between the two points of time.
    5. A company cannot have a monopoly if its shareholders receive only the normal rate of earnings on their stock in it.
    6. If the production function of an Industry is subject to constant returns to scale, the industry supply curve will be horizontal.
    7. If it were possible to travel backwards as well as forwards in time, everyone would be a millionaire.
    8. The development of better fertilizer will increase the value of farm land.
    9. Manufacturers frequently advertise that their products contain extra ingredients, and they generally succeed in selling “extra-ingredient” products (e.g. Bufferin) at higher prices than “similar” single-ingredient products (e.g. aspirin). This implies that consumers have a diminishing marginal rate of substitution between the ingredients.
    10. The removal of a barrier to competition anywhere in the economy must make society better off.
    11. Given:
        1. a three-product world,
        2. the cross-elasticity of demand of x with respect to the price of z is zero,
        3. the own-price elasticity of demand for x is -1,
        4. y and z are substitutes,
        5. expenditures on X occupy half of consumers’ budgets, expenditures on Y one quarter of consumers’ budgets in the initial situation,

it follows that the own-price elasticity of demand for y is greater than 1.5 in absolute value. (For this question consider all price-elasticities defined to include the substitution effect only.)

      1. The price-elasticity of demand on the part of a competitive industry for a factor of production will be greater, the smaller is the share of that factor of production in the total costs of the industry in question.
      2. If production in industry X (assumed to be competitive) is governed by a Cobb-Douglas production function, then no wage set by the trade union in that industry will produce greater total labor income than any other wage.
      3. A tax of a fixed amount per unit of output, placed upon the product of an industry with constant costs, will necessarily result in a smaller rise in price if that industry is organized (and behaves) as a monopoly than if the industry is competitive.
      4. In an industry employing just two factors of production, the elasticity of demand on the part of that industry for either factor must be less in absolute value than the elasticity of substitution between the two factors in that industry.
  1. (15 points) The University City Art Theater, a motion picture house showing foreign films, has the following price policies: The basic admission price is $1.00 for evening performances and 60 cents in the afternoon. Registered university students are admitted at half price at all times. A member of the University’s economics department has complained that the theater is a discriminating monopolist and should be required by local ordinance to follow a one-price policy. Comment on the desirability of this recommendation.
  2. (25 points)
    1. Industry X is composed of 10 firms, and organized as a cartel. The pricing policy of the cartel is determined by the following rule: each firm will produce one-tenth of the output of the whole industry, and the price set for the final product will be just equal to the marginal cost of production in the firm with the highest marginal cost. Show how you would measure the welfare cost of this arrangement, as compared with a competitive equilibrium.
    2. The firms now merge into a single monopoly firm, the previous 10 firms now becoming 10 divisions of the new company. All ten divisions continue to operate and have the same marginal cost functions as they did when operating separately. Show how you would measure the welfare costs of this new arrangement. Under what circumstances, if any, would these welfare costs be lower than those of case A?
    3. The government now intervenes to break up the monopoly. The same 10 firms as existed in case A are reconstituted; collusion is somehow prevented; and merger is precluded by a requirement that no firm shall expand the total volume of its capital. Assume that the firms begin operating under this new arrangement with each of them having the amount of capital resulting from a long-run equilibrium under case B, and that the firms behave competitively. How would you measure the welfare costs of this arrangement? Under what circumstances, if any, would these welfare costs exceed those measured under case B?

Source: Harvard University Archives. Papers of Zvi Griliches. Box 129, Folder “Preliminary Examinations, 1957-1965.”

Categories
Chicago Exam Questions Microeconomics

Chicago. Preliminary Graduate Examination in Economic Theory. Winter Quarter, 1958

The collection of price theory prelim exams from Chicago here at Economics in the Rear-view Mirror has just grown by another exam. What is particularly noteworthy about the copy that I have just transcribed is that it appears to have been recycled as a problem set sometime later by Zvi Griliches when he taught the second quarter of Chicago price theory, Economics 300b.

____________________

Chicago Price Theory
Preliminary/Core Exams
Previously Posted

Summer 1949
Summer 1951
Summer 1952
Winter 1955
Summer 1955
Winter 1957
Summer 1960
Winter 1964
Winter 1965
Winter 1969
Summer 1975

____________________

Note in pencil at top of page:

30 copies, Griliches Weds. 
300B Griliches Feb. 
take home problems

____________________

ECONOMIC THEORY
Preliminary Examination
for the Ph.D. and A.M. Degrees
Winter Quarter 1958

WRITE THE FOLLOWING INFORMATION ON YOUR EXAMINATION PAPER:

Your Code Number and NOT your name
Name of Examination
Date of Examination

Results of the examination will be sent to you by letter after results on all preliminary examinations have been received.

Answer all questions. Time: Four hours.

Total Points: 240 (Equals number of minutes allowed for the examination.)

  1. (60 points) Develop the major aspects of the theory of a competitive firm, and compare it with the theory of consumer behavior. What are the similarities and the differences between the two theories and the concepts used in each?
  2. (50 points) Analyze briefly each of the following propositions: Marginal productivity analysis…
    1. proves that the existing distribution of income is ethically just;
    2. provides a basis for understanding the demand for factors of production;
    3. is a complete theory of the determination of the prices of production;
    4. provides a basis for understanding the supply of factors of production;
    5. does not apply in the case of fixed proportions.
  3. (50 points) Indicate briefly the meaning of each of the following phrases, identify the economist (or economists) associated with each, and state some of his major contributions to economics:
    1. Engel’s Law
    2. Say’s Law
    3. Iron Law of Wages
    4. Schumpeterian innovators
    5. Conspicuous consumption
    6. Contract curve
    7. Elasticity of demand
  4. (40 points) In calculating whether the government ought to undertake certain investment projects, a rate of interest is frequently used. How in principle would you determine what rate of interest is appropriate?
  5. (40 points) It is argued in connection with the development of underdeveloped countries that basic industries such as steel should be developed by the government, since private investors will neglect the external economies brought to other industries by low-cost steel, and therefore will underinvest. Evaluate this argument. For what general class or classes of cases is the argument correct?

Source: Harvard University Archives. Papers of Zvi Griliches. Box 130. Folder “Preliminary Examinations, 1957-1965”.

Image Source: Social Science Research Building. University of Chicago Photographic Archive, apf2-07490, Special Collections Research Center, University of Chicago Library.

Categories
Exam Questions M.I.T. Macroeconomics Microeconomics

M.I.T. General Exams, Micro and Macro. Feb 1967

Here we have another example of the sharing that goes on among leading economics departments. For some reason Zvi Griliches at Harvard had a copy of the general examination questions for both microeconomics and macroeconomics at M.I.T.  that he kept in his files of Harvard prelim exams. Since anybody looking for M.I.T. economics exams would unlikely get all the way to Griliches’ papers (a goldmine for Chicago and Harvard exams by the way), Economics in the Rear-view Mirror has transcribed them for the digital historical record of the M.I.T. economics department.

____________________________

[Handwritten note:] MIT Prelim            Return to Z.G.

February 8, 1967

General Examination
Micro Theory — Two Hours

Answer any THREE questions (40 minutes each).

  1. In a two-factor, two-product economy with fixed stocks of L and T, both industries use L and T in the same proportion when facing the same pair of factor prices. One industry is purely competitive, with constant returns to scale; but the other is a “natural monopoly,” with moderately increasing returns to scale. Every household always divides its income equally between the two goods.
    1. What kind of transformation curve will the economy have?
    2. If the monopoly is regulated so that price equals average cost, what will this imply as to the economy’s general equilibrium? Comment on the relationships among the prices and quantities of the two goods, the real wages and rents in terms of both goods, and the labor and land quantities allocated to the two industries.
    3. Is there then any way in which the allocation of resources can then be improved? Explain.
  2. An individual has an income from property of Y0 per year. If he faces a given wage rate, at which he chooses to work t1 hours for total wages of Y1 what will be the comparative revenues of the following alternative taxes, when each would have the same effect on the individual’s own welfare:
    1. a lump-sum tax
    2. a proportional tax on his wage income
    3. a progressive tax on his wage income?
  3. A monopolist faces a linear demand for his product, which is produced with just L and T subject to fixed coefficients. What can you say about his demand for L
    1. in a short run when T is fixed in quantity, and
    2. in the long run when T is available at a fixed price? Explain fully.
  4. Discuss the welfare economics doctrines associated with at least three of the following economists:
    1. Bergson
    2. Arrow
    3. Pigou
    4. Hicks-Kaldor-Scitovsky
  5. Discuss the similarities and differences between the problems of duopoly and bilateral monopoly. You may limit your discussion to the simpler standard instances of each.

*  *  *  *  *  *  *  *  *  *  *  *  *

General Examination in Macroeconomics
February 3, 1967

Answer three questions.

  1. Suppose i) Net Saving is proportional to NNP; ii) Net Investment is an increasing function of NNP and a decreasing function of the interest rate, r, with the shape illustrated.

    1. What justification is there for an investment function of this general shape?
    2. Plot the implied IS curve.
    3. Plot a conventional LM curve and discuss the determination and stability of macroeconomic equilibrium and the consequences of an increase in the money supply.
  2. “The capitalist investor is fundamentally a friend of the worker, but the technical inventor can quite often be his enemy.” (Wicksell) Discuss.
  3. Why has the average propensity to save not fallen as income per head has increased in the U.S.?
  4. Suppose investment behavior is such that all investment opportunities which offer a rate of return equal to or greater than some fixed target rate R are instantly adopted. Labor and capital are the only factors of production; constant returns to scale and diminishing returns prevail. The labor force grows exogenously at a fixed annual rate g.
    1. What saving rate, relative to national product will just maintain full employment in the steady state?
    2. How does that saving rate vary with g?
    3. What do you make of the common notion that a rapidly-increasing labor force makes it harder to maintain full employment?
  5. Suppose that scientific inventory control methods reduce the desired inventory/sales ratio. Construct a simple model of inventory cycles which will tell you the effect of this development on the damping of inventory fluctuations.

Source: Harvard University Archives. Papers of Zvi Griliches, Box 129, Folder “Preliminary Examinations, 1957-1965”.

Image Source: The MIT beaver from the cover of the 1949 yearbook Technique.

Categories
Chicago Exam Questions Microeconomics

Chicago. Price Theory Core Examination. Winter 1965

Another specimen of the Chicago price theory exam featuring True/False/Uncertain questions. This copy found in the Zvi Griliches’ papers in the Harvard Archives.

____________________

Chicago Price Theory
Preliminary/Core Exams
Previously Posted

Summer 1949
Summer 1951
Summer 1952
Winter 1955
Summer 1955
Winter 1957
Summer 1960
Winter 1964
Winter 1969
Summer 1975

____________________

CORE EXAMINATION
Price Theory
Winter, 1965

Preliminary Examination for the Ph.D. and A.M. Degrees

WRITE THE FOLLOWING INFORMATION ON YOUR EXAMINATION PAPER:

Your Code Number and NOT your name
Name of Examination
Date of Examination

Results of the examination will be sent to you by letter.

Answer all questions. Time: 3 hours

  1. Indicate whether you believe each of the following statements to be true, false, or uncertain. In each case write a few sentences explaining your answer. Your grade will depend heavily on your explanation.
    1. A monopolist can always get more revenue from a consumer by a fixed sum plus price-per-unit system of charging than by the price-per-unit alone.
    2. A flat sum tax on the firms in an industry will never have an effect upon output in the short-run.
    3. If a demand curve is defined as the relationship between price and quantity of X, the real income and the prices and quantities of other goods held constant, it will have an elasticity of -1.
    4. If a cartel assigns quotas to its member firms on the basis of their “capacity” there will be more than the profit-maximizing amount of investment in the industry.
    5. If all commodities had positive income elasticities, there would be no merit in the present distinction between substitution and income effects.
    6. The elasticity of demand for X with respect to the price of Y never equals the elasticity of demand of Y with respect to the price of X.
    7. The short-run price elasticity of the supply of beef can be negative.
    8. The assumptions of competition, constant returns to scale, and equilibrium are inconsistent.
    9. A competitive firm will increase its output as a result of a fall in the price of one of its inputs.
    10. The own-price elasticity of demand for a commodity is no smaller, in absolute value, than the marginal propensity to consume that commodity.
    11. “The price paid for water is no indication of its true value in use because the water makes the production of additional wealth possible. Thus a farmer may pay his irrigation district $8.00 for water per acre of land, but the value of the crops grown might be in the neighborhood of $100 per acre.”
    12. “A central planning authority may or may not decide to weight equally the welfare of the future generation and the welfare of the present generation. This is essentially an ethical question. But if equal weights are to be applied, the appropriate rate of discount (interest) to use in comparing the costs and benefits from alternative public investments is a zero rate.”
    13. In equilibrium, a competitive firm has all the business (sales) it wants. Hence advertising is incompatible with either competition or equilibrium.
    14. The fact that a consumer, in equilibrium, is not consuming all of the possible commodities, implies that he gets increasing marginal utilities from the commodities that he does consume.
    15. A tax on American citizens who go abroad will reduce tourist expenditures and hence improve the U.S. balance of payments only if the demand for foreign trips is elastic.
  1. “Exploration for natural gas or oil is a form of investment. As such, like all investments, it depends on the expected level of future output (demand). Thus, a rise in the governmentally fixed (regulated) price of natural gas will decrease consumption and hence curb exploration. Conversely, lowering the price of gas will stimulate both consumption and exploration.” Appraise.
  2. Assume the following simple world, in which you are asked to determine the optimum rate of automobile accidents.
    1. The only type of accident which occurs is that a car may run into a house. The damage is then always $200.
    2. The probability of an accident will be greater,
      1. …the faster automobiles are driven
      2. …the closer houses are set to the highway.

Assume explicitly any additional information you need to define the socially optimum accident rate. What mechanism, if any, could you design to achieve it?

  1. The competitive private enterprise form of economic organization is regarded by some economists as a sort of ideal which it would be desirable to approximate in practice.
    1. On a purely theoretical level, use the tools of economic analysis to explain to a skeptic precisely in what way(s) and why the competitive private enterprise form is optimal.
State whatever assumptions and define whatever terms you require, and state explicitly the criteria of excellence that you are using.
    2. Are there any conditions under which the competitive organization form may fail to produce the results promised above?
    3. What other important economic problems of a modern state, if any, may still be unsolved despite the fact that perfect competition has been achieved? Explain in each case why the problem is important and why perfect competition does not solve it, or explain why there are no unsolved problems.

Source: Harvard University Archives. Papers of Zvi Griliches. Box 129. Folder “Preliminary Examinations, 1957-1965”.

Categories
Exam Questions Microeconomics Suggested Reading Syllabus Theory UCLA

UCLA. Price theory. Course outline and reading list. Hirshleifer, 1972

A copy of the syllabus for Jack Hirshleifer’s UCLA price theory course taught in 1972 comes as a serendipitous find in the papers of Robert Clower at Duke’s Economist Papers Archive. 

_________________________

Posted Earlier

Harvard. Economics Ph.D. alumnus, Jack Hirshleifer, 1950

_________________________

Winter 1972

Econ 201B
Mr. Hirshleifer

COURSE OUTLINE AND READING LIST

Pre-requisite: The student is presumed to have completed Econ 201A prior to undertaking this course; only in exceptional circumstances will this requirement be waived. Acquaintance with the elements of calculus remains a practical necessity.

Procedures: As in 201A, we will have lectures, class discussions, and problems. Students are reminded that classroom contributions and homework performances enter into the final grade.

Readings: The officially required texts are Stigler, THEORY OF PRICE (3rd ed.), Friedman, PRICE THEORY, and Lerner, ECONOMICS OF CONTROL. However, substantial readings are assigned in a number of other books that would make useful additions to one’s library. These include: (1) Baumol, ECONOMIC THEORY AND OPERATIONS ANALYSIS. (But note that while chapters assigned refer to 2nd edition, a new 3rd edition is expected shortly.) (2) Becker, ECONOMIC THEORY. (3) Bronfenbrenner, INCOME DISTRIBUTION THEORY. And there are also a number of books of collected readings that are advantageous to own.

The Graduate Library has been asked to place all assigned materials on reserve. Insofar as possible, readings should be studied in order as listed. The fundamental readings for our purposes are starred below; unstarred items may provide basis for lectures and discussions.

  1. PRODUCTION AND DEMAND FOR FACTORS

*Stigler, THEORY OF PRICE, Ch. 6-9, 14.

*Hirshleifer, “Exposition of the Equilibrium of the Firm,” ECONOMICA, August 1962. [Reprinted in Kamerschen, READINGS IN MICROECONOMICS.]

*Allen, MATHEMATICAL ANALYSIS FOR ECONOMICS, pp. 284-289, 315-322, 340-343.

*Lerner, ECONOMICS OF CONTROL, Ch. 11-17.

*Friedman, PRICE THEORY, Ch. 6-9.

*Becker, ECONOMIC THEORY, Ch. 7-8.

Hicks, VALUE AND CAPITAL, Ch. 6-7.

Marshall, PRINCIPLES OF ECONOMICS (8th ed.) Book V, Ch. 6.

V. L. Smith, INVESTMENT AND PRODUCTION, Ch. 2, Appendix on Kuhn-Tucker Conditions.

*Dorfman, “Mathematical or Linear Programming,” AER v. 43 (Dec., 1953)

*Baumol, ECONOMIC THEORY AND OPERATIONS ANALYSIS (2nd ed.), Ch. 5-6 (omit appendix), 11-12.

Douglas, “Are There Laws of Production?”, AER v. 38 (March, 1948).

*Arrow, Chenery, Minhas, Solow, “Capital-Labor Substitution and Economic Efficiency”, Rev. Ec. and Stat., August 1961 (to p. 234).

  1. SUPPLY OF FACTORS; FACTOR MARKETS; ROLE OF THE FIRM

*J. Robinson, “Rising Supply Price” in AEA READINGS IN PRICE THEORY, Ch. 11.

Marshall, Book VI, Ch. 1-11.

*Stigler, THEORY OF PRICE, Ch. 15-16.

*Chiswick, “The Economic Value of Time and the Wage Rate”, WEJ (June, 1967).

*Lerner, ECONOMICS OF CONTROL, Ch. 18.

*Friedman, PRICE THEORY, Ch. 10-11.

*Becker, ECONOMIC THEORY, Ch. 9.

*Bronfenbrenner, INCOME DISTRIBUTION THEORY, Ch. 9-10.

Hilton, “The British Truck System,” JPE v. 65 (June 1957).

*Alchian and Allen, UNIVERSITY ECONOMICS, Ch. 20.

Schumpeter, THEORY OF DEVELOPMENT, Ch. 1, 2, 4.

*AEA READINGS IN PRICE THEORY, Ch. 16, 17 (Coase, Scitovsky).

Hicks, THEORY OF WAGES, Ch. 6

*Cheung, “Private Property Rights and Sharecropping,” JPE (Nov./Dec., 1968).

*Lindsay, “Measuring Human Capital Returns” (on reserve).

  1. WELFARE ECONOMICS AND GENERAL EQUILIBRIUM

Bronfenbrenner, INCOME DISTRIBUTION THEORY, Ch. 1-5.

*Lerner, ECONOMICS OF CONTROL, Ch. 6, 9.

*B. Hansen, A SURVEY OF GENERAL EQUILIBRIUM SYSTEMS, Ch. 3,4.

*Baumol, ECONOMIC THEORY AND OPERATIONS ANALYSIS, Ch. 16.

AEA READINGS IN PRICE THEORY, Ch. 12 (Ellis-Fellner).

*Bator, “The Simple Analytics of Welfare Maximization,” AER, March 1957
[Reprinted in Kamerschen, READINGS IN MICROECONOMICS, also in Breit and Hochman, READINGS IN MICROECONOMICS.]

*Arrow, “The Organization of Economic Activity,” in Haveman and Margolis, PUBLIC EXPENDITURES AND POLICY ANALYSIS.

Houthakker, “Economics and Biology: Specialization and Speciation,” KYKLOS, v. 9 (1956).

*Vickrey, “Some Objections to Marginal-Cost Pricing,” JPE, (June 1948).

Demsetz, “Why Regulate Utilities?”, JLE (1968).

*Coase, “The Problem of Social Cost,” JLE (Oct., 1960) [Reprinted in Breit and Hochman, READINGS].

Gordon, “The Economic Theory of a Common-Property Resource: The Fishery,” JPE (April, 1954).

*Worcester, “Pecuniary and Technological Externalities”, AER (Dec., 1969).

*Mishan, “The Postwar Literature on Externalities,” JEL (March, 1971).

*Demsetz, “The Private Production of Public Goods,” JLE (Oct., 1970).

Hochman and Rodgers, “Pareto Optimal Redistribution,” AER (Sept., 1969).

Source: Duke University. David M. Rubenstein Rare Book & Manuscript Library. Economists’ Papers Archive. Robert W. Clower Papers, Box 4, Folder “Econ 170-171: Org. of Enterprise + Industry”.

Image Source: Seal of the University of California, Los Angeles (UCLA) at the Wikimedia Commons.