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

 

 

Links to previously posted Chicago prelim exams.

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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?

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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.

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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.

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