Category: Theory

Categories
Macroeconomics Northwestern Syllabus Theory

Northwestern. Syllabus for Income and Employment Theory. Clower, 1958

By chance I found the announcement of Robert Clower’s appointment to chair the Northwestern economics department while pimping out the 1958 syllabus for his course on income and employment theory. Some academics are born to be chair, some achieve that chair status, while others need to have the job of chair thrust upon them.

Once you have digested that amuse-bouche, you will be served the main course, Clower’s syllabus below.

_______________________

N.U. Appoints New Chairman in Economics

Robert W. Clower, associate professor of economics at
Northwestern university, has been appointed chairman of the economics department to replace Prof. Richard B. Heflebower, who will be on leave of absence for a year to engage in research.
Professor Clower, 1923 Orrington av., came to the university last year from the state college of Washington, where he was assistant professor since 1952. From 1954 to 1956 he was a visiting professor at the University of Punjab, Lahore, Pakistan.
The research project of Prof. Heflebower is on certain dynamic aspects of price and output determination in markets where sellers are relatively few.

Source: Chicago Sunday Tribune. 3 August 1958.

_______________________

SYLLABUS
Economic Theory:
Income & Employment

Economics C-11
Summer 1958

Instructor: Mr. Clower

General Information and Requirements

Texts:

Kurihara, Introduction to Keynesian Dynamics.
Keynes, The General Theory of Employment, Interest and Money

Supplementary Reading:

A.E.A. Series Readings on the Theory of Income Distribution
A.E.A. Series Readings in Business Cycle Theory
A.E.A. Series Readings in Monetary Theory
Harris, Seymour E., The New Economics
Hansen, Alvin H., Business Cycles and National Income
Duesenberry, J.S., Income, Saving, and the Theory of Consumer Behavior
Domar, E.D., Essays in the Theory of Economic Growth
Hicks, J.R., A Contribution to the Theory of the Trade Cycle
Kurihara, [K.K.] Post Keynesian Economics
Baumol, W.J., Economic Dynamics
Patinkin, D., Money, Interest and Prices
Clower, R.W., “The Dynamics of Investment,” American Economic Review, March, 1954

“Productivity, Thrift and the Rate of Interest,” Economic Journal, March, 1954
Friedman, [M.] A Theory of the Consumption Function
Klein, L.R., The Keynesian Revolution
Lange, O., Price Flexibility and Employment

Lectures will be presented on Monday, Tuesday, Thursday and Friday of each week. Wednesdays will be reserved for midterm examinations and for consultation about projects.

Students should become familiar with the general content of all the works cited above as “Supplementary Reading,” and they should acquire a thorough grasp of relevant portions of these works that are cited in connection with weekly assignments given below. Do not ask for special details; such matters should be settled by each student for himself.

Students are required to submit as projects for the session three short papers (six to twenty typewritten pages) chosen from the following topics:

        1. Keynes and the Classics
        2. The Consumption Function
        3. Keynesian Unemployment
        4. The Inducement to Invest
        5. Growth Models
        6. The Business Cycle

Exact titles are to be decided by the student in consultation with the instructor. Topics may be oriented toward applications, or theory, or both, and may be narrowed down to almost any desired degree. Papers must be submitted in a form fit for publication (see any reputable journal for ideas on this) even though their content may fall well short of this standard. The first essay is due at the end of the fourth week; the second at the end of the sixth week; and third at the end of the final examination (Saturday, August 16, 10:30 – 12:30 a.m.). Late papers will not be accepted. Between one-third and one-half weight will be given to these papers in determining final grades for the course.

Weekly Assignments

Week I.
Introduction.

Text assignments:

Kurihara, Preface and Chapter I;
Keynes, Preface and Book I.

Supplementary readings:

Hansen, Business Cycles, Chapters 1-5, 25-30.
Baumol, Economic Dynamics.
Harris, The New Economics, Parts one and two.
Klein, Keynesian Revolution

Week II.
Consumer Expenditure.

Text Assignments:

Kurihara, Chapter 2;
Keynes, Chapter 6 and Book III.

Supplementary readings:

Kurihara, Post Keynesian Economics
Friedman, Consumption Function
Hicks, Trade Cycle
Duesenberry, Income, Saving, etc.

***Hour Examination: Wednesday, July 2.***

Week III.
Investment Expenditure.

Text assignments:

Kurihara, Chapter 3;
Keynes, Chapters 11 and 12.

Supplementary reading:

Hicks, Trade Cycle.
Clower, “Dynamics of Investment.”
Klein, Keynesian Revolution.

Week IV.
The Rate of Interest.

Text Assignments:

Kurihara, Chapter 4;
Keynes, Chapters 13, 14, 15.

Supplementary readings:

Hicks, “Suggestion for Simplifying Theory of Money,” AEA Monetary Theory.
Modigliani, “Liquidity Preference,” AEA Monetary Theory
Clower, “Productivity, Thrift, and the Rate of Interest.”

***Hour Examination, Wednesday, July 23.***
Covering work of first four weeks of session.

Week V.
Income Determination.

Text assignments:

Kurihara, Chapters 5-7;
Keynes, Chapter 18.

Supplementary readings:

Lange, “The Rate of Interest and the Optimum Propensity to Consume,” AEA Business Cycle Theory.
Hicks, “Keynes and the Classics,” AEA Income Distribution.
Hicks, Trade Cycle.
Hansen, Business Cycles, Part II.

Week VI.
The Comparative Statics and Dynamics of Income Analysis.

Text assignments:

Kurihara, Chapters 8-9;
Keynes, Chapters 19-22.

Supplementary readings:

Hansen, Chapter 22 (by R. M. Goodwin).
Samuelson, “Interactions between the Multiplier and Accelerator,” AEA Business Cycle Theory

Week VII.
Price Flexibility and Employment.

Text assignments:

Kurihara, Chapter 10.

Supplementary readings:

Lange, Price Flexibility.
Patinkin, Money, Interest and Prices, part I, Chapters 1-3; Part II.

Week VIII.
Growth Economics; Concluding Comments.

Text assignments:

Kurihara, Chapters 11-13;
Keynes, Chapter 24.

Supplementary reading:

Domar, Economic Growth.
Harris, The New Economics, Part III.

***Final Examination***
Saturday, August 16, 10:30-12:30.

Source: Duke University. David M. Rubenstein Rare Book & Manuscript Library. Economists’ Papers Archive. Robert W. Clower Papers. Box 4, Folder “Econ C11. Economic Theory Income and Employment. Exam, Syllabus 1966-67 (sic, also includes this 1958 syllabus)”.

Image Source: Profile of Robert W. Clower, 1926-2011 at The History of Economic Thought website.

Categories
Exam Questions Harvard Macroeconomics Microeconomics Theory

Harvard. Graduate General Exams in Micro- and Macro-Theory. Fall 1993

The following general examination for macroeconomic theory (Spring 1993) has been transcribed from a collection of general exams at Harvard from the 1990s provided to Economics in the Rear-view Mirror by Abigail Waggoner Wozniak (Harvard economics Ph.D., 2005). Abigail Wozniak was an associate professor of economics at Notre Dame before being appointed a senior research economist and the first director of the Federal Reserve Bank of Minneapolis’ Opportunity & Inclusive Growth Institute. She is currently Vice-President of the Federal Reserve Bank of Minneapolis.

Economics in the Rear-view Mirror is most grateful for her generosity in sharing this valuable material.

Because the “Wozniak collection” is over 90 pages long, it will take time for all the exams to get transcribed. To date the following general examinations have been transcribed and posted:

Spring 1991
Microeconomics; Macroeconomics

Spring 1992
Micro- and Macroeconomics

Fall 1992
Micro- and Macroeconomics

Spring 1993
Microeconomics; Macroeconomics

_________________________

HARVARD UNIVERSITY
DEPARTMENT OF ECONOMICS

GENERAL EXAMINATION
IN MICROECONOMIC THEORY
FALL 1993

Instructions:

You have FOUR hours.

Answer a total of FOUR questions, subject to the following constraints:

You must answer questions 1, 2, and 3. You must answer either question 4 or 5 (but not both).

Please use a separate blue book for each question.

Please put only your exam number on the blue book.

Good luck!

1. Indirect Utility (20 points)

This is a question on the indifference map of indirect utility functions.

There are two commodities. The utility function is U(x_1, x_2). Wealth is normalized to w=1, so that the indirect utility function has the form V(p_1, p_2).

Assume that U(x_1, x_2) is continuous and increasing in both arguments.

a) Draw an indifference map of the indirect utility function. Be sure that the axes are properly labelled, that the indifference curves have the proper shape and that the direction of increasing preference is clearly marked. (5 points)

b) Argue that if the utility function U(x_1, x_2) is not quasi-concave then some indirect indifference curve will exhibit a kink. (5 points)

c) Suppose that an indifference curve of the indirect utility function has a piece that is a straight line. What does this correspond to in the direct utility function? Why? (5 points)

d) Consider the slope of an indifference curve of the indirect utility function. Interpret it in terms of the demand function. Justify your answer. (5 points)

2. (20 points)

Consider an industry in which there are two firms: an incumbent and a potential entrant. In each of two periods, total inverse demand in the industry is given by

p = 5 - Q,

where Q is total output. The incumbent’s marginal cost of production c_I can either be “high” (c_I = 2) or “low” (c_I = 1). The incumbent knows the value of c_I, but the potential entrant knows only that the two values each have a 50% probability ex ante. In the first period, the incumbent chooses an output level q_{I1}. The entrant can observe q_{I1} (but not the incumbent’s profit). In the second period the two firms choose quantities q_{I2} and q_{E2} simultaneously. The entrant’s marginal cost c_E is 2. In addition, if the entrant chooses q_{E2} > 0, it incurs an “entry” cost of \frac{1}{2}. The two firms each maximize their (expected) profits (the incumbent maximizes the expected sum of its first- and second-period profits). The model and all its parameters are common knowledge (the value of c_I is not common knowledge, but the fifty-fifty prior distribution on 1 and 2 is common knowledge).

A. Suppose that the entrant concludes, after observing q_{I1}, that the incumbent’s costs are low (i.e., the entrant attaches posterior probability 1 to c_I = 1). Show that, in this case, the entrant will not enter. That is, show that q_{E2} = 0 in the unique continuation equilibrium starting in period 2. What are the incumbent’s second-period output and profit in this continuation equilibrium?

B. Suppose that the entrant concludes, after observing q_{I1}, that the incumbent’s costs are high (c_I = 2). Show that, in this case, the entrant will enter, i.e., choose q_{E2} > 0, in equilibrium. Find the second-period continuation equilibrium outputs and profits for both firms.

C. Using the results from parts (A) and (B), show that there exists a “separating” perfect Bayesian equilibrium for the two-period model in which (i) the incumbent chooses a “small” value of q_{I1} if c_I = 2 and a “big” value if c_I = 1, and (ii) the entrant enters if and only if q_{I1} was small. In particular, show that q_{I1} is at the high-cost monopoly level if c_I = 2 but strictly above the low-cost monopoly level if c_I = 1.

3. Gross Substitute Excess Demand (20 points)

Consider an excess demand system (f_1(p_1,\ldots,p_{L-1}),\ldots,f_{L-1}(p_1,\ldots,p_{L-1})). There is an Lth commodity for which price is 1 and for which demand is not explicitly recorded.

a) How would you determine the demand for the Lth commodity? (5 points)

b) Suppose that the excess demand system for all L commodities satisfies the gross substitute property (when the price of a single commodity goes up the excess demand of each of the other commodities increases). Argue that the competitive equilibrium is then unique. (5 points)

c) Suppose that the excess demand functions for all L commodities are differentiable and that as in (b) the gross substitute property holds. What is the sign pattern induced in the Jacobian matrix of price effects? (5 points)

d) Suppose that the excess demand functions for all L commodities are differentiable and satisfy the gross substitute property. Suppose now that there is a shock (if this is helpful you can limit yourself to a small shock) the effect of which is to decrease the demand for commodities 1 to L−1 at every vector of prices. What should be the effect of this shock on the equilibrium prices of commodities 1 to L−1? Give a justification of your answer which is as rigorous as possible. (5 points)

Part IV:
Answer ONE of the following two questions:

4. Suppose there is another energy shock and the world-market price of oil goes from its present price of under $20 per barrel to $100. Analyze the short and long term effects on growth and distribution from neoclassical, Marxian, and Keynesian perspectives on the simplifying assumption that all energy is imported at the world-market price.

5. Milton Friedman has argued (“The Methodology of Positive Economics”) that a theory should be judged not on the realism of its assumptions, but on its predictive power. What are the principal criticisms of Friedman’s view? How might Friedman respond to the criticisms?

_________________________

HARVARD UNIVERSITY
DEPARTMENT OF ECONOMICS

GENERAL EXAMINATION
IN MACROECONOMIC THEORY
FALL 1993

Instructions:

You have FOUR hours.

You will answer a total of SIX questions from four sections of the exam:

In section I, you must answer the one question given.
In section II, answer both questions.
In section III, answer one of the two questions.
In section IV, answer two of the three questions.

Please use a separate blue book for each question.

Please put only your exam number on the blue book.

Good luck!

PART I:

1. Suppose that each household-producer has the production function,

Y_i = AK_i \cdot (G/Y)^{\alpha},

where A>0, 0<\alpha<1. Y_i and K_i are the ith producer’s output and capital stock, respectively, G is the total of government purchases and public services, and Y is aggregate output. The output of all producers is identical and can be used on a one-for-one basis for consumption, investment, or government services. Each household seeks to maximize utility, given by the standard Ramsey expression,

\displaystyle U = \int_0^{\infty} \left(\frac{c^{1-\theta}-1}{1-\theta}\right) e^{-\rho t}\,dt,

where \theta>0, \rho>0, and c is consumption per person. The economy is closed, depreciation and population growth are zero, and no technological change occurs. The government finances its purchases by a proportional tax on output at the rate \tau:

G = \tau Y,

where \tau is constant over time.

a. What is the growth rate of Y? Does the model exhibit a convergence property? Why or why not?

b. How does the growth rate depend on \tau? What condition holds if \tau is chosen to maximize the growth rate?

c. Are the outcomes Pareto optimal if \tau is set to maximize the growth rate? How does this result relate to the usual view that lump-sum taxation is superior to proportional taxation?

PART II:
Answer BOTH questions:

2.—

a.) Under what assumptions does the permanent income hypothesis predict that consumption should follow a random walk?

b.) Derive explicitly the random walk of result (a).

c.) Discuss briefly what you know about the empirical evidence on the random walk.

d.) Consider a pre-announced future temporary tax cut. What are the effects on consumption of this policy before, during, and after the tax cut? Consider the cases of: (1) the life cycle model; (2) the life cycle model with bequests, (3) the Keynesian consumption function; (4) a life cycle model with liquidity constraints.

3. Consider a monopolistic trade union, that can unilaterally set the nominal wage. The union’s utility function is:

\displaystyle U = \left(\frac{w}{p}\right)^{\frac{1}{2}} + \beta N

Where: w is the nominal wage
p is the price level
N is employment
and \beta>0 is a parameter.

\displaystyle N = n_0 - \alpha\frac{w}{p},

where n_0>0 and \alpha>0 are parameters

1) Suppose first that p is fixed, and compute what is the nominal wage chosen by the union.

2) Suppose that a monetary authority can influence the price level with monetary policy, and suppose that the union can change the nominal wage at any time but with a small cost; that is, any change in the nominal wage has a very small administrative cost for the union. Discuss the effects of monetary policy in this model.

PART III:
Answer ONE of the following two questions:

4. Consider the case of a central bank conducting monetary policy in a standard fractional reserve banking system. The central bank can set either the short-term interest rate or the quantity of bank reserves (but not both simultaneously) to whatever level is chosen. What factors determine the central bank’s optimal choice of which one to set, under each of the following sets of circumstances?

(a) The central bank is trying to come as close as possible to hitting a target for the money stock (defined as public holdings of bank deposits).

(b) The central bank is trying to come as close as possible to hitting a target for real output.

In answering each part, show explicitly what difference (if any) it makes whether the economy is subject to aggregate supply shocks or whether demand-type disturbances are the only ones the economy faces.

5. Under what conditions can a central bank’s prior announcements of its policy actions influence the macroeconomic effect of those actions? If the central bank is free to conduct a politically independent monetary policy, what determines whether it will then actually implement the actions it has announced? Be explicit about the assumptions on which your answer relies.

PART IV:
Answer TWO of the following THREE questions:

6. Consider an unemployed worker searching for work. Each period she draws a wage offer w from a distribution F(w). Assume that there are no quits or layoffs so once the worker accepts a job, she works at it forever. Assume that wages in future periods are discounted by \beta.

(a) Write a Bellman equation that characterizes the value of an optimal search policy given a current offer of w.

(b) The optimal policy is to set a reservation wage. Explain what this means and write an equation that implicitly defines the reservation wage.

(c) Suppose that the worker only receives a wage offer with probability \phi each period. Explain in words or equations what happens to the reservation wage and why?

(d) Suppose that the worker receives two wage offers each period. Explain in words or equations what happens to the reservation wage and why?

7. Consider the following open economy macroeconomic model

(1) Y = f(K, L)
(2) W/P = f_L
(3) Y = C(Y) + G + NX(e, Y)
(4) e = EP^*/P
(5) M/P = L(Y)

Where asterisks denote foreign variables, NX is net exports, E is the nominal exchange rate and all other variables have their usual interpretations.

(a) What is the sign of \partial NX/\partial e? Explain.

(b) Suppose that workers and firms set nominal wage contracts:

W = \bar{W}

What is the effect of a change in M or in G on Y?

(c) Suppose that wages are indexed to the CPI:

W = \bar{w}P^{\alpha}(EP^*)^{1-\alpha}

What is the effect of a change in M or in G on Y?

8. Suppose that price in a market is initially equal to zero, but is expected to rise linearly with time:

p(t) = \alpha t.

Suppose that you have a machine that costs k to install and once installed produces a unit flow of output. Time is continuous and the date zero present value of a dollar at date t is e^{-rt}.

(a) At what date t should you have the machine installed in order to maximize profits?

(b) What is the present value of profits at the optimal time of investment?

(c) What is the value of Tobin’s Q at the optimal time of investment? What did Tobin argue should be the relationship between Q and investment? Speculate about what is special about the case considered here.

Source: Department of Economics, Harvard University. Past General Exams, Spring 1991-Spring 1999, pp. 84-88. Private copy of Abigail Waggoner Wozniak.

Image Source: Harvard University Economics PhD graduates from May 2025.

Categories
M.I.T. Theory

M.I.T. Reading list for Economics of Uncertainty. Diamond and Maskin, 1978

About three decades lie between the following course on the economics of uncertainty jointly taught at M.I.T. in 1978 and the respective awards of economics Nobel prizes to Eric Maskin (2007, mechanism design) and Peter Diamond (2010, economics of search). Still a solid reading list.

_________________________

14.145 Economics of Uncertainty
P. A. Diamond and E. S. Maskin

Fall 1978

Reading List

TEXT

Diamond and Rothschild, UNCERTAINTY IN ECONOMICS, READINGS AND EXERCISES, Academic Press.

REFERENCES

    1. Arrow, ESSAYS IN THE THEORY OF RISK BEARING.
    2. De Groot, OPTIMAL STATISTICAL DECISIONS.
    3. Drèze, ALLOCATION UNDER UNCERTAINTY.
    4. Ferguson, MATHEMATICAL STATISTICS: A DECISION THEORETIC APPROACH.
    5. Raiffa, DECISION ANALYSIS.

READINGS (* refers to required readings)

I. Individual Choice (Static)

A. Criterion

1.

 Tamerin, J. and H. Resik, “Risk taking by individual option–Case Study–cigarette smoking in perspectives on benefit-risk decision making,” National Academy of Engineering, 1972 in Diamond-Rothschild.

2.

 Tversky, A. and D. Kahneman, “Judgment under uncertainty: Heuristics and biases,” SCIENCE (September 27, 1974), in Diamond-Rothschild.

3.

 Tversky, A. and D. Kahneman, “Value theory: An analysis of choices under risk.”

4.

 Milnor, “Games Against Nature,” in DECISION PROCESSES, edited by G. Thrall, 1954.

5.

 Maskin, Decision making under ignorance, with implications for social choice, Theory and Decision, forthcoming.

6.

 Radner, R. and M. Rothschild, “On the Allocation of Effort,” JOURNAL OF ECONOMIC THEORY (1975).

7.

 Kunreuther, H., “Economic Analysis of Low Probability Events.”

*8.

 Drèze, J., “Axiomatic Theories of Choice…,” in Drèze, ALLOCATION UNDER UNCERTAINTY.

*9.

 Arrow, Chapter 2.

B. Comparative Statics

*10.

 Pratt, J., “Risk Aversion in the Small and in the Large,” ECONOMETRICA (January 1964), 122-36, in Diamond and Rothschild.

*11.

 Arrow, K., Chapter 3.

*12.

 Rothschild, M. and J. Stiglitz, “Increasing Risk: I. A Definition,” JOURNAL OF ECONOMIC THEORY (September 1970), 225-243, in Diamond and Rothschild.

*13.

 Rothschild, M. and J. Stiglitz, “Increasing Risk: II. Its Economic Consequences,” JOURNAL OF ECONOMIC THEORY (March 1971), 66-70, 78-80 only.

*14.

 Yaari, M., “Some Remarks on Measures of Risk Aversion and on their Uses,” JOURNAL OF ECONOMIC THEORY (October 1969), 315-29, in Diamond and Rothschild.

15.

 Dasgupta, P., A. Sen, and D. Starrett, “Notes on the Measurement of Inequality,” JOURNAL OF ECONOMIC THEORY (1973).

16.

 Diamond, P. and J. Stiglitz, “Increases in Risk and in Risk Aversion,” JOURNAL OF ECONOMIC THEORY (1974).

*17.

 Leland, H., “Saving and Uncertainty: The Precautionary Demand for Saving,” QUARTERLY JOURNAL OF ECONOMICS (August 1968), in Diamond and Rothschild.

18.

 Hahn, F., “Savings and Uncertainty,” REVIEW OF ECONOMIC STUDIES (1969).
II. Equilibrium (Traditional)

*19.

 Debreu, G., THEORY OF VALUE, Chapter 7, pp. 98-102 in Diamond and Rothschild.

*20.

 Arrow, Chapter 4.

21.

 Hirshleifer, J., “Investment Decisions under Uncertainty–Choice Theoretic Approaches,” QUARTERLY JOURNAL OF ECONOMICS (November 1965), 509- .

22.

 Radner, R., “Competitive Equilibrium Under Uncertainty,” ECONOMETRICA (1968), 31-58, in Diamond and Rothschild.

*23.

 Diamond, P., “The role of a stock market in a general equilibrium model with technological uncertainty,” AER (September 1967), 759-776, in Diamond and Rothschild.

*24.

 Grossman, S., “A Characterization of the Optimality of Equilibrium in Incomplete Markets,” JET, June, 1977.

25.

 Dreze, J., ALLOCATION UNDER UNCERTAINTY, Chapters 4,5,8.

26.

 Hart, O., “On the optimality of equilibrium when markets are incomplete,” JOURNAL OF ECONOMIC THEORY (1975).

27.

 Leland, H., “Capital asset markets, production, and optimality: A Synthesis,” IMSSS TECHNICAL REPORT.

28.

 Gould, “Inventories and Stochastic Demand: Equilibrium Models of the Financial Industry, J. BUSINESS, Jan. 1978, 1-42.

29.

 Lucas, Jr., Robert E., “Asset Prices in an Exchange Economy.”

30.

 Diamond, “Efficiency with Price Uncertainty,” mimeo.
III.  Adverse Selection: Signalling and Screening

*31.

 Akerlof, G., “The Market for Lemons: Qualitative Uncertainty and the Market Mechanism,” QUARTERLY JOURNAL OF ECONOMICS (August 1970), 488-500, in Diamond and Rothschild.

32.

 Spence, M., “Job Market Signaling,” QUARTERLY JOURNAL OF ECONOMICS (August 1973), in Diamond and Rothschild.

*33.

 Spence, M., “Competitive and Optimal Responses to Signals: Analysis of Efficiency and Distribution,” JOURNAL OF ECONOMIC THEORY (March 1974).

34.

 Riley, J., “Competitive Signalling,” JOURNAL OF ECONOMIC THEORY (1975).

35.

 Riley, J., “Competitive Signalling: Further Remarks.”

36.

 Wilson, C., “A Model of Insurance Markets with Asymmetric Information,” JOURNAL OF ECONOMIC THEORY, 1977.

*37.

 Rothschild, M. and J. Stiglitz, “Equilibrium in Competitive Insurance Markets,” QUARTERLY JOURNAL OF ECONOMICS (1976), in Diamond and Rothschild.

38.

 Stiglitz, J. E., “The Theory of ‘Screening,’ Education, and the Distribution of Income,” AER (1975).

39.

 Wilson, C., “The Nature of Equilibrium in Markets with Adverse Selection,” SSRI #7715, 1977.
IV. Moral Hazard

40.

 Pauly, M., “Overinsurance and the Public Provision of Insurance,” QUARTERLY JOURNAL OF ECONOMICS (1974), 44-62 in Diamond and Rothschild.

41.

 Shavell, S., “On Moral Hazard and Insurance.”

42.

 Spence, M. and R. Zeckhauser, “Insurance, Information and Individual Action,” AER (May 1971), 380-87 in Diamond and Rothschild.

43.

 Diamond, P. and J. Mirrlees, “A Model of Social Insurance with Variable Retirement,” M.I.T. Economics Working Paper No. 210.

44.

 Mirrlees, J., “Notes on Welfare Economics, Information and Uncertainty,” in Balch, McFadden et al., ESSAYS ON ECONOMIC BEHAVIOR UNDER UNCERTAINTY.

*45.

 Spence, M., “Consumer Misperceptions, Product Failure and Producer Liability,” REVIEW OF ECONOMIC STUDIES (1977).
V.  Information

*46.

 Hirshleifer, J., “The Private and Social Value of Information and the Reward to Inventive Activity,” AER (1971), 561-74, in Diamond and Rothschild.

*47.

 Arrow, K., “Uncertainty and the Welfare Economics of Medical Care,” AER (1963), 941-73 (also in Arrow, and in Diamond and Rothschild).

48.

 Arrow, K. and A. Fisher, “Preservation, Uncertainty, and Irreversibility,” QUARTERLY JOURNAL OF ECONOMICS (May 1974), 312-19.

49.

 Cheung, S., “Transaction Costs, Risk Aversion and the Choice of Contractual Arrangements,” JOURNAL OF LAW AND ECONOMICS (April 1969), 23-42, in Diamond and Rothschild.

50.

 Nelson, P., “Advertising as Information,” JOURNAL OF PUBLIC ECONOMICS (July 1974).

51.

 Lucas, R., “Expectations and the Neutrality of Money,” JOURNAL OF ECONOMIC THEORY (April 1972).

*52.

 Danthine, “Information, Future Prices and Stabilizing Speculation,” JOURNAL OF ECONOMIC THEORY, (Feb. 1978).

*53.

 Blackwell and Girschick, THEORY OF GAMES AND STATISTICAL DECISIONS (last chapter).
VI. Individual Choice (Sequential)

54.

 De Groot, OPTIMAL STATISTICAL DECISIONS, Chapters 12-14.

55.

 Kohn, M. and S. Shavell, “The Theory of Search,” JOURNAL OF ECONOMIC THEORY (October 1974), 93-123.

56.

 Rothschild, M., “A Two-Armed Bandit Theory of Market Pricing,” JOURNAL OF ECONOMIC THEORY (1974).

*57.

 Rothschild, M., “Searching for the Lowest Price When the Distribution is Unknown,” JOURNAL OF POLITICAL ECONOMY (July 1974), in Diamond and Rothschild.

58.

 Lippman, S. and J. McCall, “The Economics of Job Search: A Survey,” ECONOMIC INQUIRY.

59.

 Axell, B., “Prices under Imperfect Information, A Theory of Search Market Equilibrium.”

60.

 Wilde, L., “Labor Market Equilibrium under Nonsequential Search,” JET, 1977.

*61.

 Weitzman, M., “A Basic Result in the Theory of Optimal Search,” M.I.T. Working Paper, 373-93.

VII.  Equilibrium with Search

62.

 Pratt, J., D. Wise, and R. Zeckhauser, “Price Variation in Almost Competitive Market.”

63.

 Rothschild, M., “Models of Market Organization with Imperfect Information,” JOURNAL OF POLITICAL ECONOMY (November 1973), 1283-1308, in Diamond and Rothschild.

64.

 Salop, S. and J. Stiglitz, “Bargains and Ripoff,” REVIEW OF ECONOMIC STUDIES (1977).

65.

 Lucas, R. and G. Prescott, “Equilibrium Search and Unemployment,” JOURNAL OF ECONOMIC THEORY (February 1974), 188-200, in Diamond and Rothschild.

*66.

 Butters, G., “Equilibrium Distributions of Prices and Advertising,” REVIEW OF ECONOMIC STUDIES (1977), in Diamond and Rothschild.

67.

 Diamond P., “Welfare Analysis of Imperfect Information Equilibria,” BELL JOURNAL, Spring 1978.

68.

 Salop, S., “The Noisy Monopolist,” REVIEW OF ECONOMIC STUDIES (1977).

69.

 Mortensen, D., “Job Matching Under Imperfect Information.”

*70.

 Diamond and Maskin, “Search, Liquidated Damages, and Breach of Contract,” M.I.T. Working Paper.

*71.

 Diamond and Maskin, “Search Effort and Breach of Contract,” M.I.T. Working Paper.

Source: Duke University. David M. Rubinstein Rare Book and Manuscript Library. Economists’ Papers Archives. Peter Diamond papers. Box 4, Folder “Teaching Material.”

Image Sources: Peter A. Diamond (Credit: Donna Coveny/MIT, 2003) in “An Interview with Peter Diamond” in Macroeconomic Dynamics (2007) p. 544. Eric S. Maskin (1980). From the MIT Museum Museum website’s Biographical/Subject Files Collection .

Categories
Chicago Exam Questions Theory

Chicago. Graduate preliminary examination in economic theory, incomplete. Winter, 1956

 

Artifacts displayed in museums, especially ancient artifacts, are perhaps more often as not, flawed. So too with the documentary record. Sometimes we have gaps. Rather than mourn the missing documents, we celebrate what we have gotten our hands and eyes on. And so this post gives us the True-False-Uncertains questions of the winter quarter 1956 economic theory prelim exam from the department of economics at the University of Chicago.

_____________________

Links to previously posted Chicago prelim exams.

_____________________

ECONOMIC THEORY
Preliminary Examination
Winter Quarter 1956
(incomplete)

Write your number, and not your name, on your examination paper.
Answer all questions.
Time: 4 hours.

  1. (40 points) True, False or Uncertain. Explain your answer.
    1. Since the costs of finding oil are virtually constant over the relevant range of exploration now going on, the depletion allowance which amounts to a subsidy to companies which extract the oil they find is purely a device which increases the profits of the oil companies at the expense of the taxpayer.
    2. A minimum wage law may reduce the demand for labor by some firms and may have no effect on the demand by other firms, but will never increase it.
    3. The sum of the income elasticities of demand for all commodities (by a single consumer) is unity, while the sum of their price elasticities is zero.
    4. If the marginal utility of each commodity diminishes with increases in the rate of consumption, then no commodity will be an inferior commodity.
    5. The fact that new commodities are typically introduced into a consumer’s budget when his income rises implies that the marginal utility of the commodities he was already consuming must have been falling.
    6. Although the demand schedule for a productive service by a firm buying competitively must have a negative slope, the demand schedule for a productive service by a monopsonistic firm may have either a positive or negative slope.
    7. The futures price of a commodity equals the current spot price plus the cost of storing the commodity for the length of the futures contract.
    8. The existence of effective rent control on old dwellings decreases the demand for new dwellings.
    9. Family size has declined in the United States from 1900 to 1950; yet per capita income has increased. If there were no change in tastes, this would imply that children are an inferior commodity.
    10. The existence of firms of different sizes in the same industry implies that there is a horizontal marginal cost curve for firms in the industry.
    11. Immigration to the United States of a million unskilled laborers from abroad would increase the average per capita income of everyone previously living in the United States.
    12. The fact that managers of many large corporations in the United States own a small fraction of the common stock of these corporations implies that the policies of these corporations are often not in the best interests of the stockholders.
    13. The figures for national income show that during the 20th century, per capita national income has grown at a faster rate in the United States than in India. This implies that Indians have been saving a smaller fraction of their incomes.
    14. If we replaced the income tax in the United States by a sales tax, the change would induce persons to shift away from occupations that have large nonpecuniary advantages.
    15. The competitive firm attempts to equalize marginal cost, average cost and price.
    16. When a firm’s average cost is decreasing, its marginal cost is decreasing and is less than average cost.
    17. Between 1951, and 1956 farm product prices (relative to prices paid by farmers) fell by about 20 percent; farm output increased by about 9 percent. This implies that the supply function for farm products is backward bending.
    18. If all firms paid each factor the value of its marginal product and if all product prices were equal to their respective marginal costs, it would not be possible to increase the output of one product without decreasing the output of some other product.
    19. Two products are produced in fixed proportions. An increase in the demand for one of the products would result in a fall in the price of the other product and, all other things constant, the fall in the price of the second product will be the greater, the greater the relative importance of the second product in the total receipts derived from producing the two joint products.
    20. The existence of overtime pay at premium rates proves that the supply of labor is backward bending.

Source: Harvard University Archives. Papers of Zvi Griliches. Box 129. Folder “Preliminary Examinations, 1955-1957”.

Image Source: Coat of arms of the University of Chicago.

The University Coat of Arms, a shield displaying the phoenix below and the book and motto above, was adopted by the Board of Trustees on August 16, 1910. The University motto Crescat scientia; vita excolatur was adopted by the Board on January 17, 1911 and added to the Coat of Arms on the pages of the open book.
The Coat of Arms was designed by Pierre de Chaignon la Rose, a heraldic specialist in Boston working under contract to the Board of Trustees. No surviving documents make clear precisely why the phoenix was adopted as the central element on the Coat of Arms, but the most probable assumption is that the phoenix can be seen as a symbol of the city of Chicago, which was seriously damaged by the great Chicago Fire of 1871 and then was successfully rebuilt, or reborn, within just a few years.

__________________________

Preliminary and Field Exams from the economics graduate program of the University of Chicago

Note: The chronological ordering of quarters at the University of Chicago during a calendar year goes Winter, Spring, Summer, Autumn. For this reason the following is arranged chronologically.

Categories
Chicago Exam Questions Theory

Chicago. Economic Theory Prelim. Parts I and II. Summer 1953

 

 

Links to previously posted Chicago prelim exams.

_____________________

Economic Theory, Part I

Written examination for the Ph. D. and A.M. Degrees,
Summer Quarter 1953

Answer all questions.  Time: 4 hours.

Question 1.

Each year large sums of public funds are spent to find and make known improvements in agricultural technology.  Most rationalizations for this practice picture it as “helping the farmer.”  To what extent and under what conditions can promotion of technical improvements –

(a) increase rent of land used for agriculture?
(b) increase net incomes of farmers who are tenants?
(c) increase gross receipts of farmers as a class?

Question 2.
    1. “If the purchase tax on new cars should be reduced in the coming budget, there will be a sharp drop in all second-hand prices to bring them into line with the reduced list prices of the new cars.”(Economist, March 21, 1953, p. 821.)  Discuss, including an analysis of the channels, if any, whereby the reduction in purchase tax (in our terminology, excise tax) would affect the prices of used cars.
    2. A monopolist is initially producing 1000 units of output which he sells for $30 per unit.Assume that conditions remain unchanged except for the government actions listed below.  What can you tell about the effects of each action on output, price paid by consumers, and the return (after tax) to the monopolist?  Consider the actions as separate alternatives, no two are in effect together.  If some answers depend on special assumptions make these explicit.
      1. A tax of $10 per unit is imposed on the first 500 units produced.
      2. A tax of $10 per unit is imposed on the first 1200 units produced.
      3. A subsidy of $10 per unit is granted on all units produced in excess of 500.
      4. A subsidy of $10 per unit is granted on all units produced in excess of 1000.
      5. The price is arbitrarily set at $28.  The government guarantees sale of the monopolist’s entire output.
Question 3.

The present value of a collection of assets equals the sum of discounted gross returns that the owner expects it to yield.  Explain the determination of the discount rate: how is it related to the owner’s tastes and opportunities and to the tastes and opportunities of other people?

Question 4.

Consider a firm using several factors of production and making several products.  “There is no reason why an equal proportional increase in all factors should not enable all products to be increased in the same proportion as the factors have been increased.”  But in this case “it is not possible for the price of one factor (or product) to change, there being no change in the prices of all other factors and products, without upsetting equilibrium altogether.  If the price of a product rises, output will become infinite; if the price of a factor rises, it will become zero…  Our analysis threatens to break down altogether.”  (Hicks).  Is this conclusion correct?  If so, show a) how it follows from the premises; b) how it can be reconciled with observed facts.  (Note: You may start with the case of one factor and one product.)

Question 5.

“The operatives are perfectly right in thinking that if all worked on Sunday, seven days’ work would have to be given for six days’ wages; but so long as the great mass of employments are suspended, the small number who for the enjoyment of others must still work, obtain a proportional increase of earnings; and they are not obliged to follow those occupations if they prefer leisure to emolument.”  (J. S. Mill, in “On Liberty.”)

      1. How would Mill have justified his conclusions in terms of the economic doctrines of his time? Indicate briefly the intellectual history of the relevant doctrines.
      2. Analyze his conclusions in light of current economic theory.
Question 6.

In economic theory, the indifference maps and opportunity (transformation) functions are stated to have certain properties. Which are these properties and how can they be inferred from factual evidence?

_____________________

Economic Theory, Part II

Written examination for the Ph.D. and A.M. Degrees,
Summer Quarter 1953

Answer all questions.  Time: 3 hours.

Question 1.

The income velocity of circulation appears to have been falling rather steadily in the United States over the past 100 years to about one-third its initial value.  What factors might in your view explain this secular decline?

Question 2.

Assuming continuing technological progress, suppose that the practice of negotiating for real rather than money wage rates spreads over all industries of the country.  What effect would this have upon price level, employment and the distribution of income, under various assumptions about monetary policy?

Question 3.

What are the principal “automatic stabilizers” of prices and business activity now operative?  In your view, what additional step is most needed to improve the prospect that automatic stabilization will work reasonably well? Explain.

Question 4.

Does it have any practical significance whether the maximum difference or the maximum ratio between the amount of currency in circulation and the Central Bank reserve (in metal or foreign exchange) is fixed?  Give historical examples of both kinds of rules.

Source: Hoover Institution Archives. Milton Friedman Papers, Box 76, Folder “76.10”.

Image Source:  Social Science Research Building (Lecture Hall 1). University of Chicago Photographic Archive, apf2-07482, Special Collections Research Center, University of Chicago Library.

__________________________

Preliminary and Field Exams from the economics graduate program of the University of Chicago

Note: The chronological ordering of quarters at the University of Chicago during a calendar year goes Winter, Spring, Summer, Autumn. For this reason the following is arranged chronologically.

Categories
Exam Questions Swarthmore Theory Undergraduate

Swarthmore. Honors Examination in Economic Theory. Coppock, 1947

Joseph David Coppock was an external examiner for the honors economic theory examination at Swarthmore. The economics department called on their alumnus (A.B., 1933 with a Columbia University Ph.D., 1940) at least three times in the 1940s. His January 1947 examination questions are transcribed for this post.

______________________

Swarthmore Senior exams posted previously (with external examiner names)

Senior Comprehensive Examination (1931)

Broadus Mitchell (1934)

Lloyd Metzler (1943 to 1945)

Paul Samuelson (1943)

Richard Musgrave (1946)

Wolfgang Stolper (Seminar, ca. 1944)

______________________

[Handwritten note: “Examiner: Coppock”]

Swarthmore College​
Honors Examination​
Economic Theory

January 29, 1947.

Answer 5 questions, including No. 1

  1.  —
    1. Using your own arithmetic assumptions, derive an individual buyer’s demand curve from a set of (consumer) indifference curves. Show both schedule and graph.
    2. Using your own arithmetic assumptions, derive an individual producer’s variable cost curve from a traditional “diminishing physical returns curve.” Show both schedule and graph.
  2. —
    1. How, under classical distribution theory, would an increase in national product be distributed among the customary claimants? Explain.
    2. To what extent does your answer in (a) apply to present-day circumstances in the U. S.?
  3. Write an explanatory and critical essay on the relation of the interest rate to the level of investment in the national economy (a) under any conditions you may wish to assume and (b) under present-day conditions in the U. S.
  4. Suppose you were David Ricardo and received from the review editor of an economic journal a copy of Chamberlin’s Theory of Monopolistic Competition with a request to review it. Write a review, comparing Chamberlin’s book with your own Principles of Political Economy and Taxation.
  5. The First Annual Report of the Council of Economic Advisers states:

“It would be very simple indeed if we could rely on fiscal policy as a panacea (for unemployment). Broadly speaking, the shortcoming of this single-track doctrine….is that it does not face the complexity of our economic system.”
Develop the point.

  1. —
    1. What is economic progress?
    2. What are the conditions of it?
    3. What does a change in population have to do with it?
  2. —
    1. Point out some key differences between general equilibrium and particular [sic] equilibrium theory.
    2. How do these differences affect the application of economic theory to the real economic world?

Source: Duke University. David M. Rubinstein Rare Book and Manuscript Library. Economists’ Papers Archives. Wolfgang F. Stolper Papers, Box 22, Folder 1.

Image Source: Swarthmore College yearbook, Halcyon 1940, p. 11.

Categories
Chicago Exam Questions Theory

Chicago. Graduate Economic Theory Prelim Questions. Winter, 1953

 

Links to previously posted Chicago prelim exams.

_____________________

ECONOMIC THEORY I
Part I

Written examination for the Ph.D. and A.M. Degrees Winter Quarter, 1953
  1. I. —
    1. a. —
      1. 1.  [5 points] What will be the relation between the demand curve for a product at retail and the demand curve for the same product at the manufacturing level? Which would you expect to be the more elastic at the relevant equilibrium price and why?
      2. 2. [5 points] What, if anything, is implicitly assumed in the wording of the above question about the state of competition at either the retail or manufacturing level?
    2. b.  —
      1. 1.  [5 points] Draw a system of production indifference curves showing the alternative combinations of two factors of production (A and B) required to produce given outputs of X. What properties of the shapes of your curves can be justified in general.
      2. 2. [2 points] Show how to determine the combination of factors that will be used for a given relative price of A and B.
      3. 3. [3 points] Show how to determine the effect of changes in the relative price of A and B on the combination of factors.
  2. II.—
    1. a. [10 points] Consider two industries: X which is competitive, and Y, monopolistic. The supply curve in X is horizontal, the marginal cost curve of the monopolistic firm in Y is also horizontal (constant marginal cost). Demand declines by 25% in both industries in the sense that the quantity demanded at each price declines by 25%. The supply and cost curves are unaffected. What happens to price in X? In Y?
    2. b. [10 points]  “Rubber growers have long complained that American synthetic rubber, produced in government plants, is sold below its true cost, thus subsidising its consumption at the expense of natural rubber. Since the new Administration is expected to dispose of the synthetic plants to private owners, the growers are now hoping that an economic price will soon be charged for the product … The potential range of prices at which private industry might sell synthetic rubber … obviously … would depend to a considerable extent on the terms at which the American Government might transfer the plants. Mr. Heilman (in an article in Natural Rubber News) suggests that if the plants are leased, or sold at depreciated book values, the new operators would be able to sell ‘standard cold synthetic rubber’ at only 22 cents a lb, assuming that annual output did not exceed 600,000 tons. If the factories were to be sold at their full replacement cost, the selling price might be 25-26 cents a lb for output of up to 450,000 tons of cold rubber a year, rising to 28-30 cents a lb for output up to 600,000 tons.

“Whatever disposal arrangements are made, realistic provision against obsolescence, at replacement costs, would in Mr. Heilman’s opinion fix the long-term selling price between 25 and 30 cents … a lb.”
The Economist, January 24, 1953, p. 238 (underlinings added)

Do you agree with the underlined statement? Justify your answer.

  1. [20 points] In Chicago, as in most other large cities, taxicab fares are fixed by the municipality. Suppose, (though this is not the case), that anyone who wants to operate a taxi at these fares is automatically granted a license to do so, subject perhaps to some objective test of ability to drive, so that entry is essentially free. Analyze the equilibrium position corresponding to any given fare. Contrast the characteristics of this equilibrium position when the fare which is set relatively “high” and relatively “low”, in terms of number of cabs, income of cab drivers or owners, and any other relevant characteristics of the equilibrium.
  2. [20 points] Summarize briefly the principal contributions to economic thought of the following; indicating their approximate chronological order:
    1. Eugen von Böhm-Bawerk
    2. Leon Walras
    3. Wesley C. Mitchell
    4. Joan Robinson
    5. Irving Fisher
    6. Thorstein Veblen
    7. Francois Quesnay
    8. Johann von Thünen
    9. Antoine Augustin Cournot
  3. V. [20 points] It is argued by some that a permanent program of subsidies to farmers benefits farmers at the expense of the rest of the community. It is argued by others that it benefits no one, but simply imposes a loss on the community as a whole.
    Does the difference between these two reflect an error in analysis or a difference in empirical assumptions? Explain your answer.
  4. VI. [20 points] Keynes and Knight find it necessary to define the “marginal efficiency of capital” or the “rate of return on investment”, as the rate of return that makes cumulated costs equal to discounted returns. Why do they use this indirect procedure of solving an equation instead of the direct procedure used for labor, say, of calculating the rate at which total product changes per unit change in the amount of labor for given amount of the factors of production?

_____________________

ECONOMIC THEORY, PART II

Written examination for the Ph.D. and A.M. Degrees
Winter Quarter, 1953

Write on questions 1, 2, and 1 other.  Time: 2½ hours.

Do not place your name on your paper.  Give only your number.

  1. How are the following concepts related to each other and what role do they play in explaining the level of prices and of national income?
    1. Velocity of circulation
    2. Average proportion of individuals’ wealth held in cash
    3. Average ratio of individuals’ cash to their income
    4. Liquidity preference
    5. Effect of expected change in prices upon cash balances
    6. Effect of the interest rate upon cash balances
  2. What are the relative merits of a national monetary system with free exchange rates, and an international gold standard? Why should not each of the 48 states have its own monetary system?

Answer any one of the following:

  1. Discuss the points of view in the following statement on the decontrol of prices:

What the long-range effect of decontrol will be nobody knows. Some members of Congress say wage increases will now start another inflationary spiral, but others think the country’s productive capacity will effectively control prices unassisted by a tightening of government credit and money policies.

  1. There has been some agitation in recent years for raising the buying price of the U. S. Treasury for gold. What are the arguments in favor of such action? What would be the probable effects on the following countries: Great Britain, South Africa, the United States, Russia?
  2. Outline the outstanding monetary and banking legislation in the United States from 1861 to 1935.

Source: Hoover Institution Archives. Papers of Milton Friedman, Box 76, Folder “76.10”.

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

__________________________

Preliminary and Field Exams from the economics graduate program of the University of Chicago

Note: The chronological ordering of quarters at the University of Chicago during a calendar year goes Winter, Spring, Summer, Autumn. For this reason the following is arranged chronologically.

 

Categories
Exam Questions M.I.T. Theory

M.I.T. General Examination in Economic Theory. May, 1956

[M.I.T.]

GENERAL EXAMINATION
IN ECONOMIC THEORY

May 14, 1956

Answer FIVE questions in all. If you have studied mathematical economics you are urged to take at least one, but not more than two questions from Part II.

PART I
  1. “Within the restrictions of static-equilibrium analysis, an increase of demand will normally increase price, whether the good is produced under conditions of pure competition or monopoly.” Explain fully why you agree or disagree.
  2. It is sometimes implied that the duopoly problem has a unique solution provided that the duopolists fully recognize their mutual interdependence. What can be said for and against this view?
  3. “Under the complex conditions of the real world, marginal productivity concepts are relevant in explaining the factor quantities that an individual firm will use, but those concepts have no relevance in explaining the distribution of income.” Discuss.
  4. Treating each situation separately identify the underlying conditions that are implied such that each of the following will be possible:
    1. a redistribution of given total quantities of goods such that all consumers are better off;
    2. a reallocation of given total quantities of factors such that greater quantities of all goods can be produced;
    3. a reallocation of given total quantities of factors such that more of one good and less of another will make all consumers better off;
    4. an increase of the working day such that more goods and less leisure will make all laborers better off.
  5. In a truly competitive economy with just two goods (food and clothing) and two factors (labor and land), assume that the food industry is unambiguously the relatively land-intensive one. Supposing now that an innovation makes it possible to produce more food than before with any given factor quantities, discuss the alternatively possible effects on the welfare of both laborers and landlords.
  6. It has been suggested that the main result of the pure theory of consumer demand is the following proposition: if demand for a commodity increases when income increases, the demand will also increase when its price falls.
    1. Prove that this proposition is indeed true.
    2. Do you agree that this is the main consequence of the pure theory of demand?
    3. How important a part of economic theory is the theory of demand?
  7. An apple orchard and a bee-keeper exist next to each other. The more carefully the orchard is cultivated, the more honey the bees can extract from the blossoms. The more bees there are in the apiary, the more they pollinate the apple blossoms and the higher the yield of fruit. What kinds of misallocations of resources are likely to occur in this situation? How could they be corrected? Does this situation have any important parallel in the modern world?
  8. Compare the interest theories of Böhm-Bawerk, Fisher, and Keynes. Are they fundamentally compatible?
Part II
  1. Crusoe maximizes

U = ⅓ log x₁ + ⅔ log x₂

subject to
p₁x₁ + p₂x₂ = I

Derive his econometric demand functions.

  1. What is the difference between Hicksian stability and “true dynamic stability”? Assuming income effects can be neglected, show that the concepts turn out to be identical.
  2. State Euler’s theorem on homogeneous functions and give two or three different economic applications. Show that a Cobb-Douglas function is the only first degree homogeneous function for which relative shares are constant. Deduce the elasticity of demand for labor for a C-D function.

Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library, Economists’ Papers Archive. Paul Samuelson Papers, Box 33, Folder “Teaching Exams. 1952 and 1956”.

Image Source: The M.I.T. beaver featured on the cover the cover of Technique 1949.

Categories
Chicago Exam Questions Theory

Chicago. PhD Exam in Economic Theory. Autumn 1946

 

Links to previously posted Chicago prelim exams.

_____________________

ECONOMIC THEORY

Written Examination for the Ph.D. Degree
Autumn Quarter, 1946

Ph.D. Candidates:  4 hours.  Answer all the questions.  Papers will be taken up after 10 or 15 minutes warning.

  1. Define or explain:
    1. Elasticity of Demand; point and arc elasticity; income elasticity; cross elasticity.
    2. Demand curve; utility curve; indifference curve; indifference map; marginal rate of substitution.
    3. Substitution effect and income effect.
    4. Complementary goods.
    5. Real vs. alternative cost.
    6. Price-determined vs. price-determining cost.
    7. Rent and quasi-rent.
    8. Profit.
  2. In what sense and under what conditions (if at all) does cost of production determine price, (a) in the long run, (b) in the short run.(If it never does, explain the fallacy.)
  3. Briefly describe the three or four main contributions (naming the chief author of each) to the development of the concept of capital and theory of interest, beginning with Ricardo and ending with what you consider “correct” doctrine.In each case bring out the relation of capital to other “productive factors” and to money, and that of its yield to other forms of income.
  4. —
    1. Define profit for the purpose of distribution theory.
    2. Discuss the social advisability of a legal limitation, in advance from the beginning, on the rate of return on investment in fields where it is highly uncertain (such as public utilities and explorative and development of natural resources – i.e. single tax).
    3. Comment on the ethics and policy of imposing such a limitation, by regulation or taxation, on enterprises already proven highly profitable.
  5. Discuss the wisdom of the policy described in the following quotation:

“In conversations with gold mining engineers a phrase glibly and frequently repeated is ‘sweetening the ore.’ By this phrase reference is made to the practice of diverting production in profitable periods to the poorer ores and perhaps restricting output in the richer fields. Under this practice the better ores are preserved for periods in which mining costs have risen so that over a long period of time output can be held more steady. Contributing also to a policy of sweetening the ores is the reluctance of producers to install capital equipment in a period in which the tendency is for mining expenses to increase with the general advance of wages and living costs. By the time the equipment is installed it might be expected that wages and price levels would be adjusted to the increased price of gold.”

Source: Hoover Institution Archives. Milton Friedman Papers, Box 76, Folder “76.2 “University of Chicago ‘Economic Theory’”.

Image Source: Detail from the Social Science Research Building. University of Chicago Photographic Archive, apf2-07448, Hanna Holborn Gray Special Collections Research Center, University of Chicago Library.

__________________________

Preliminary and Field Exams from the economics graduate program of the University of Chicago

Note: The chronological ordering of quarters at the University of Chicago during a calendar year goes Winter, Spring, Summer, Autumn. For this reason the following is arranged chronologically.

Categories
Chicago Exam Questions Theory

Chicago. Economic Theory Prelim Exam. Summer Quarter, 1958

Element from Social Science Research Bldg at U of Chicago

 

Links to previously posted Chicago prelim exams.

___________________________

ECONOMIC THEORY PRELIMINARY EXAMINATION

SUMMER, 1958
AUGUST 1, 1958

ANSWER ALL QUESTIONS

The true-false-uncertain questions, as a group, and the essay questions, as a group, are to be given equal weight in grading the examination.

GROUP I

Indicate in the space provided the correct answer–True (T), False (F), or Uncertain (U). Explain your answer in the space provided on the pages following. Do not write more than can be included in the space provided. [Note: four T-F-U questions fit on a single page]

True (T), False (F), Uncertain (U)

  1. _____ A negative income elasticity of demand implies a positive price elasticity.
  2. _____ The demand curve for leisure is upward sloping.
  3. _____ Steel prices and output usually move together during business cycles. This means that the income effect of a rise in price is greater than the substitution effect.
  4. _____ If the price elasticity of demand is -1.0 each for commodities A and B separately, then the price elasticity of A and B taken together, the price elasticity of the joint demand for A and B, can be higher than -1.0 in absolute value.
  5. _____ When average costs are increasing, marginal costs are also increasing.
  6. _____ Prices that change only rarely constitute evidence of monopoly power.
  7. _____ A proportional income tax will have no effect on occupational choice, while a progressive income tax (same total revenue) does have an effect.
  8. _____ The price elasticity of demand for an input depends mainly upon the elasticity of demand for the final product and the relative share of total costs represented by payments for the specific input.
  9. _____ Inputs A and B are used in the production of the same product. An increase in the price of A (due to a shift in the supply function for A) will result in a decline in the price of B.
  10. _____ If the rate of interest is stable over time, firms may change the ratio of machines to labor.
  11. _____ When the borrowing and lending rates facing a firm differ, a firm may make the appropriate investment decision by maximizing the present value of the firm.
  12. _____ If the amount of capital which a firm can invest is fixed, it will choose the same investment whether it maximizes the average internal rate of return or the present value of the investment.
  13. _____ The long-run elasticity of supply of labor per person (supply measured in hours of work per lifetime) cannot exceed unity numerically.
  14. _____ The white persons who gain the most by market discrimination against Negroes are those with the greatest tastes for discrimination against Negroes.
  15. _____ If a union succeeds in raising wages, it will cause the ratio of the costs of the union labor to total costs to rise.
  16. _____ An effective minimum wage law will tend to cause labor to move out of employments having relatively great net non-pecuniary advantages.
  17. _____ Since the marginal productivity of labor rises as the ratio of capital to labor rises, wages will be higher in industries with high capital-labor ratios than in industries with low capital-labor ratios.
  18. _____ Long-run marginal cost cannot exceed short-run marginal cost.
  19. _____ If the price of wheat in market A is $2.00 per bushel and the cost of transporting a bushel of wheat from market A to market B is $0.10, the price of wheat in market B is $2.10.
  20. _____ If equal percentage changes in labor and land lead to the same percentage change in the output of wheat, and if labor yields increasing average products, the world’s wheat could be grown in a flower pot, if the pot were small enough.

GROUP II

  1. Describe briefly the major contributions of the following economists:

(1) W.S. Jevons
(2) A.A. Cournot
(3) V. Pareto
(4) Irving Fisher

  1. —
    1. The demand function for a product is P = 115-Q. The total cost of producing Q units in one plant is given by
      TC = 40Q – 10Q² + Q³. Only one-plant firms are allowed.

      1. What is the long run competitive solution (price and quantity)? [Handwritten margin note: “…and the number of firms in the industry”]
      2. What would be the approximate price charged and the quantity produced if there was only one one-plant firm and it maximized its profits. (Work only with round figures.) How much profit would it make?
    2. Assume now that a firm may have more than one plant. What is the monopoly solution? [Handwritten addition: “How much profit will it make?”]
  1. The C.E. Company, a mining company, currently operates a commissary at which employees of the company may obtain free of charge a variety of food and clothing items. The amount of each item that an employee may obtain per week may not exceed a specified amount (ration), the same for all employees. The company proposes to close the commissary next month and simultaneously to give the employees an increase in weekly wages equal to half the market value of the ration. The company, learning that you are an economist, has asked you whether the putting into effect of their proposal would increase, decrease, or leave unchanged the real weekly wages of its employees.
    1. Could you give them a definite answer without additional information? Explain.
    2. If your answer to (A) is “no”, what additional information, if any, would enable you to be certain that their proposal would decrease real weekly wages? Would increase real weekly wages? Would leave real weekly wages unchanged? Explain your answers.
  2. A study of the relationship between changes in employment by industry groups and changes in wage rates for the period from 1929 to date in the United States does not reveal a significant positive relationship between the two variables, i.e., larger changes in employment were not associated with larger changes in wage rates.
    Comment on this result in terms of the degree of competition in labor markets and the effect of wage differentials in inducing labor transfers.
    What would have been the implications if there had been a positive correlation between the variables? If there had been a negative relationship?

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

Image Source: University of Chicago Photographic Archive, apf2-07449, Hanna Holborn Gray Special Collections Research Center, University of Chicago Library.

__________________________

Preliminary and Field Exams from the economics graduate program of the University of Chicago

Note: The chronological ordering of quarters at the University of Chicago during a calendar year goes Winter, Spring, Summer, Autumn. For this reason the following is arranged chronologically.