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Chicago Exam Questions Theory

Chicago. Graduate Economic Theory Prelim Questions. Winter, 1953

 

Links to previously posted Chicago prelim exams.

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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?

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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.

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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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