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Chicago Exam Questions Microeconomics

Chicago. Price Theory Prelim Exam. Summer Quarter, 1968

by Roger Vaughan (Chicago PhD 1977)

 

Links to previously posted Chicago prelim exams.

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CORE EXAMINATION

Price Theory
Summer, 1968

Preliminary Examination for the Ph.D. Degree

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.  [Handwritten: Return question sheets with blue books.]

  1. (70 points) Indicate whether each of the following statements is true, false, or uncertain, and explain briefly
    1. The competitive demand for an input to a production process is never more elastic than the demand for the product of the production process.
    2. An ad valorem tax on the sale of gasoline for highway use would produce a more stable flow of revenue for the state than does the (existing) specific tax.
    3. If the growers of oranges increase their own consumption of oranges more than they increase the total output of oranges when orange prices rise, oranges must be an inferior good.
    4. Because a monopolist has no supply curve, one cannot predict the effect of, say, a ten per cent tax on his output.
    5. In designing an investment project, the firm should attempt to maximize the internal rate of return.
    6. It is inconsistent to explain the rise in the price of a security by “heavier buying” and a fall by “heavier selling.”
    7. For an individual, the sum of the income elasticities of demand for all commodities is unity, and similarly, the sum of their price elasticities is zero.
    8. Within a crop season, September to September, it is impossible for the actual June price to be below the actual March price of wheat because of storage costs.
    9. One would expect the price elasticity of demand for food to be lower in poorer countries than in rich ones simply because food accounts for a larger fraction of the budget in the former.
    10. If the marginal product of labor depends only upon the ratio of labor to capital, and similarly with capital, the competitive firm will have constant returns to scale.
    11. No product can have an elasticity of demand of unity throughout its entire range because no one can pay the nearly infinite price for extremely small quantities.
    12. In order that the amount of food marketed by the agricultural sector be inversely related to price, it is required that the income elasticity of demand for non-food items in that sector be increasing with income.
    13. An excise tax collected from the buyer can never differ in its effect from the same tax collected from the seller.
    14. If production occurs under conditions of constant returns to scale, the marginal product of an input always declines as the relative quantity of that input increases, hence short-run marginal cost always increases with increases in output.
  2. Essay Questions [Handwritten: “Part II. Answer all questions.”]
    1. (25 points)
      Ronald Coase has argued, in an important article on “The Problem of Social Cost” that in the absence of transaction costs, there would be no external economies: every one affected by an action would enter a contract to alter the action. Monopoly behavior has external diseconomies: the costs are borne by the customers but the benefits accrue to the monopolist. How, in the absence of transaction costs, would the monopolists and their customers behave?
    2. (30 points)
      Recent federal legislation authorizes a regulatory body to require various changes in automobiles to increase safety. The cost of the requirements for 1967-68 model cars is estimated at $50 to $100 per car, or $500 million to $1 billion in the aggregate.

      1. How will these regulations affect the prices of used automobiles?
      2. Assuming buyers of automobiles act “rationally” and with full information, are there any safety devices that are in the social interest that will not be installed in response to consumer demand?
      3. If automobile producers were made liable for all damages to occupants of automobiles in accidents, would the socially optimum amount of safety be built into automobiles?
    3. (25 points)
      Suppose that the armed forces wishes to recruit a given number of men. One alternative would be to set a wage such that the number of volunteers equaled the number desired. Another way would be to set a lower wage and to draft a number of men equal to the difference between the number wanted and the number volunteering. In the latter case, assume that each person receiving a draft call would be permitted to hire a substitute for himself or to sell himself as a substitute for some other person. Compare these two schemes in terms of the number of personnel secured, the total pay received by the men, and the sources of this pay. Do not concern yourself with either the existing scheme or probable changes therein.
    4. (30 points)
      The English are much concerned about a “brain drain,” that is, the emigration of highly educated workers. Answer the following questions, assuming constant returns to scale.

      1. Is there any difference, in the effects on the per capita income of those remaining behind, between the emigration of a professional worker and the emigration of a non-professional worker who takes an equivalent amount of capital with him?
      2. Suppose one unskilled worker emigrates with £100 (his per capita share of England’s capital). Will the per capita effects be different–on those who remain–than if one-third of the English labor force migrates?
      3. Reverting to the “brain drain,” will it make any difference–to those who remain–whether the education of the skilled emigrants was paid for by themselves or subsidized by the state?
      4. How will the immigration of these workers into the United States affect U.S. skilled and unskilled workers?

Source:  Harvard University Archives. Papers of Zvi Griliches, Box 130, Folder “Preliminary Examinations, 1965-1968.”

Image Source: “The School of Chicago 1972” by Robert Vaughan at theHarvard University Archives. Papers of Zvi Griliches, Box 129. Folder “Posters, ca. 1960s-1970s”.

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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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