Chicago. Economic Theory Preliminary Examination. Griliches Copy. Winter, 1957

There is something of a mystery about the following transcription of the “Economic Theory I” Preliminary Examination for the Ph.D. and A.M. Degrees at the University of Chicago from the Winter quarter of 1957 that I found in the Zvi Griliches papers at the Harvard University archives. It does not match the Economic Theory I preliminary examination from the same Winter Quarter found in the Milton Friedman papers at the Hoover Institution archives. The most likely explanation is that some anonymous soul simply failed to have updated the quarter of the exam in a copy-and-paste rough draft.. The mystery then, is which came first, the Friedman copy or the Griliches copy?

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

• Economic Theory I and II. Summer 1949
• 
Economic Theory I and II. Summer 1951
• 
Economic Theory I and II. Summer 1952
• 
Economic Theory I. Summer 1955
• 
Economic Theory I and II. Winter 1955
• 
Money and Banking. Summer 1956
• 
Economic Theory. Winter 1957 [Friedman copy]
• Economic Theory. Winter 1958
• 
Money and Banking. Summer 1959
• 
Economic Theory (Old Rules). Summer 1960
• Economic Theory. Winter 1961
• Economic Theory (Old Rules). Summer 1961
• Price Theory. Summer 1962
• Price Theory. Winter 1963
• 
Price Theory. Winter 1964
• Price Theory. Winter 1965
• 
Income, Employment and Price Level. Summer 1967
• 
Money and Banking. Summer 1967
• Price Theory. Winter 1969
• 
Income, Employment, Price Level. Winter 1969
• 
Money and Banking. Winter 1969
• 
International Trade. Winter 1970
• 
History of Economic Thought. Summer 1974
• 
Price Theory. Summer 1975
• Industrial Organization. Spring 1977
• History of Economic Thought. Summer 1989

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ECONOMIC THEORY I
Preliminary Examination for the Ph.D. and A.M. Degrees

Winter Quarter 1957

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.

Do section I of the examination on this paper and turn it in to the proctor with the rest of your examination. You are to do sections II-VII separately.

1. Indicate whether each of the following statements is true (T), false (F), or uncertain (U). Explain briefly the basis for your answer.
   1. A tax on a product whose supply is of zero elasticity will have no effect on resource allocation.
   2. 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.
   3. Since 1951 interest rates have risen by about 50 percent whereas real wages have risen only by approximately 24 percent. This implies that firms are and will be using more labor per unit of capital than they did in 1950.
   4. An income tax has no resource misallocating effects.
   5. A competitive firm will increase its demand for factor A as a result of a fall in the price of factor B.
   6. “A monopolist has no supply curve.” Hence it is impossible to predict his response to a shift in the demand curve facing him.
   7. Budget studies have yielded an income elasticity of demand for food of .5 for urban families and of . 35 for farm families. This implies that farm families have substantially different tastes or consumption habits.
   8. Price stabilization at the mean of fluctuating prices would harm consumers.
   9. Product A is one of the major inputs used in the production of product B. Price control is imposed on product A, but not on product B, at a level below the equilibrium price of A. This will result in a fall of the price of B.
   10. A tax of 50% of the gross sale price of all new automobiles in the U. S. will in the short run tend to double the market value of used automobiles, and in the long run tend to double the gross market price of new automobiles as well.
2. Suppose the armed forces want to raise a fixed number of men. One way to do this would be to set a price at which the number of volunteers would equal the number wanted. Another way would be to set a lower price and draft the difference between the number wanted and the number volunteering. Assume that each person receiving a draft notice would be permitted not only to enter as a draftee but also either to buy a substitute or to be a substitute for someone else.
   Contrast the two schemes in terms of the personnel secured, the pay received, and the source of this pay.
3. In a recent study, David Blank and George Stigler note the existence of an interrelation between the demand for higher education and the supply of faculty for institutions of higher education. “For”, they write, “the very presence of a much increased demand [for higher education] … carries with it a much increased supply of trained individuals” from whom faculty members can be recruited.
   1. What do you regard as the essential feature of the interrelation? Can you cite other examples? Contrast with specific examples where this particular interrelation does not arise.
   2. Suppose the increased demand for higher education led to no increase in the student body but was met entirely by severer rationing, by price or otherwise, of entry into college. Would the statement quoted above be rendered false?
      Justify your answer.
4. Producers in one area of goods that are also produced elsewhere often claim that the distant producers keep their high quality product at home and sell only their low quality goods elsewhere. On the other hand, consumers often complain that local producers ship all their high quality products elsewhere and sell only the poor quality material locally (as in the standard California complaint that you can’t but a decent orange in retail markets in California). Obviously, either group might be right in some special case. But can you think of any general factors that would on the average tend to produce the one result or the other? I.e., in any particular case, what indirect information would you consider relevant in forming a judgment about which was right?
5. We frequently speak of “the substitution of capital for labor”. What do you take this phrase to mean (a) for an individual firm; (b) for the economy as a whole? Does your interpretation allow for the fact that the major part of the cost of new capital equipment is labor cost?
6. Indicate briefly the meaning of each of the following phrases, identify the economist (or economists) associated with each, and state his major contribution to economics:
   1. Pareto optimum
   2. Pigou effect
   3. Walrasian equilibrium
   4. Schumpeterian innovators
   5. Cobb-Douglas production function
   6. Conspicuous consumption
   7. Wicksellian natural rate of interest
   8. Contract curve
7. Many families carry life insurance for the husband, and very few carry it for the wife or children. There have been several attempts to explain this. Some say that the loss from the death of the wife or children is mostly a psychic loss, and psych losses cannot be insured. Others say that the loss from the death of the wife or children is too small to be worth insuring. Evaluate these arguments. Can you give an explanation consistent with rational behavior?

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