Giora Hanoch graduated with a doctorate in economics from the University of Chicago in December 1965 with his dissertation “Personal earnings and investment in schooling.” He held the rank of assistant professor of economics for the academic year 1964-65, after which, according to his entry in the AEA 1969 Biographical Listing of Members, he returned to Hebrew University, Jerusalem, in 1965. With many visiting appointments throughout his career, his academic home was Hebrew University.
Clearly the faculty thought highly enough of him in his fourth year at Chicago to entrust him with the first quarter of the 300-level price theory sequence (Autumn Quarter, 1964).
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Giora Hanoch, Professor Emeritus of Economics
Hebrew University of Jerusalem
1932. Born in Haifa, Israel
1960. A.B. Hebrew University.
1961. A.M. Hebrew University.
1965. Ph.D. University of Chicago. Thesis “Personal Earnings and Investment in Schooling”
1970. Visiting Lecturer, Harvard University.
1974. Visiting Lecturer, Harvard University.
1975. Visiting Lecturer, University of California, Los Angeles
1975— Fellow of the Econometric Society.
Source: “Giora Hanoch, economist”, Prabook website.
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Economics 300
G. Hanoch
Mid-Term Examination
November 18, 1964
I. (60 points)
Answer the following True, False, or Uncertain. Explain your answer briefly.
- If two individuals engage in barter, or direct exchange of goods, then always either: a) One individual benefits by the transaction while the other one is hurt; or b) Both are neither benefited nor hurt.
- In a perfect market economy, each consumer participates equally in determining what is produced.
- If an increase in the demand for X results in an increase i n the price of X, the demand for X is upward sloping.
- If the demand for X has unitary elasticity (η = -1), changes in the price of X will not affect the total expenditures on all other goods.
- If one good is inferior, at least one other good purchased by the consumer has to be income-elastic (ηxI> 1).
- If the marginal revenue is decreasing with an increase in the quantity X, the demand for X is inelastic.
- The substitution effect of a decrease in price, as defined by Slutsky, is positive for a normal good and negative for an inferior good.
- If the market for beef is in a stable equilibrium, changes in the supply of beef will have little or no effect on its price.
- It is possible for a consumer to buy a fixed positive) quantity of X every month, whatever the price of X may be. (i.e., his demand for X has zero elasticity for all prices).
- The demand for agricultural products is inelastic; hence plentiful harvests result in lower incomes for farmers, in a free market economy.
- In view of (10), each individual farmer can improve his own position by destroying a part of his production in good years.
- A linear and downward-sloping demand curve is always elastic at high prices and inelastic at low prices.
- If the Laspeyres quantity index between two periods is 1.10 and the Paasche index is 0.90, the consumers’ taste must have changed,
- The cross-elasticity of demand for left shoes with respect to the price of right shoes is zero.
- A consumer with a utility function is in equilibrium if the marginal utility of each good is proportional to its price.
- If all prices increase by 10%, but money income remains the same, the quantity of each good purchased will decrease.
- The demand of a consumer for X cannot be infinitely elastic at every quantity of X, because of the budget constraint.
- In an economy where the king distributes all the goods and services as free gifts to the consumers, all the prices are zero. Hence there is no place for price theory in that country.
- The demand for X is of unitary elasticity, and 200 similar firms sell X. A reduction of 1% in the price PX charged by one firm will result in doubling that firm’s sales, if other firms sell the same quantity at any price.
- Because of transportation costs, prices will differ in different geographical locations, whether or not there exists free competition in the market.
II. (40 points)
Two consumers, A and B, have equal and stable tastes and incomes. In December, each spent his entire monthly income on x units of X and y units of Y, when the prices in the market were $2.00 for X and $5 for Y. Consumer A accepted an offer of his employer to be paid in kind, by receiving the same quantities y and y every month directly. (He could still exchange any quantity of X and Y at the market, for the current market prices). B’s money income remained the same.
The following prices prevailed in the market during the next few months:
|
Month |
$ per unit of X | $ per unit of Y |
| 1 | 2.00 | 5.00 |
| 2 | 2.20 | 5.50 |
| 3 | 2.00 | 5.50 |
| 4 | 2.00 | 4.50 |
| 5 | 1.80 | 4.50 |
| 6 | 2.20 | 4.50 |
1) Compare consumer A’s position in each of these months with his position in December (was he better-off, worse-off, or indifferent?)
2) Compare the positions of A and B in each month.
NOTE: Use budget lines (and, if necessary, indifference curves) for your analysis. Do not attempt to answer more questions than you were asked. Be brief and clear.
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ECONOMICS 300
G. Hanoch
FINAL EXAMINATION
December 14, 1964
(two hours)
I. (40 points)
Mark the following True, False, or Uncertain. Explain your answers very briefly.
- A monopolist can afford to pay wages below the market wage rates.
- A rise in the price of gasoline will lead to a rise in the price of tires.
- In a long run competitive equilibrium, the marginal firms produce where marginal costs equal average total costs.
- If a firm is in long run equilibrium, it is also in short-run equilibrium, whether it is a competitive or a monopolistic firm.
- If a production function is characterized by constant returns to scale, an increase in the use of one factor by 10% will increase output by less than 10%.
- A rise in the price of any factor used by the firm (other things unchanged) will always lead to a decrease in production by the firm.
- A firm producing the same product in many plants will determine the quantity produced in each plant so that average costs will be equal in all the plants.
- If a firm has zero variable costs, then its best profit output is where the elasticity of demand for the product is unitary.
- A firm will carry production to the point where the marginal productivities of all variable factors are equal.
- In a competitive industry with external economies, the total short run supply curve of the industry shifts to the left when there is a permanent decrease in demand for the product.
Il. (30 points)
A monopolist is faced with the following stable demand schedule for his patented machines:
|
Price per machine |
Quantity per month |
TR | MR | TC | MC |
| 40 | 1 | ||||
| 35 | 2 | ||||
| 30 | 3 | ||||
| 25 | 4 | ||||
| 20 | 5 | ||||
| 15 | 6 | ||||
| 10 | 8 | ||||
| 5 | 10 |
The Costs of production are $5000 per machine, and the fixed costs are $16000 per month.
1.) Compute total and marginal revenue and total and marginal costs in the table above.
2.) Find the equilibrium price, quantity and profits of this firm.
3.) A tax of $60,000 per month is imposed on the firm. Find the new price, quantity and profits.
4.) Instead, a tax of 60% of the market price is imposed on the machines. What will be the monopolist price, output, profits? The tax revenues?
5.) Alternatively, a tax of $24000 per machine is levied. What are the equilibrium price, quantity, profits and tax revenues? What will be the long-run equilibrium quantity?
6.) If no tax is imposed, but a maximum price of $10,000 is enforced, what will be the quantity sold? The Profits?
7.) State your preference among the 5 alternatives ((2) – (6)) above, and justify your choice briefly.
III (30 points)
The current charge for telephone service in city C is $6.40 per month, allowing the consumer 80 free local calls every month, Each additional call costs five cents. Installation is free, and no long-distance calls are available.
NOTE: In the following, assume that each consumer behaves rationally, has constant money income and tastes, with convex indifference curves and no saturation in the relevant range.
Use separate diagrams for each sub-problem. Be precise.
- Use a diagram with money-income Y and phone calls X on the axes, to show a consumer’s budget constraint. Be careful to show all the combinations of X and Y available to him, including the case where no service is installed.
(This portion is crucial for the rest of the problem). - Use indifference curves between Y and X to analyze the consumer’s decision whether to have a telephone installed or not.
- Consumer A chooses to have a telephone, and he uses 120 calls every month. Show his equilibrium position geometrically. What is the average price (in cents) of a phone call for him? What is his marginal rate of substitution between money and phone calls?
- If the current rates are replaced by a flat rate of 7 cents a call for any number of calls,
(a) Show consumer A’s new budget line, compared with the current position.
(b) Would he now use more or less than 120 calls per month?
(c) Would he be better-off, indifferent, or worse-off relative to the current position?
- Consumer A claims that he would prefer to pay a flat rate of 84 per call rather than the current rates. Could he be rational? (demonstrate your answer geometrically).
- Consumer B uses only the 80 “free” calls every month, given the current rates. Compare (as in (4)) his consumption and welfare positions with the alternative of being charged a flat rate of 8¢ per call for any number of calls. Could he be indifferent with respect to the two alternative rates?
Source: Harvard University Archives. Papers of Zvi Griliches. Box 130, Folder “Syllabi and exams, 1961-1969”.
Image Source: Giora Hanoch in “These Israelis Were Present at the Declaration of Independence.” Haaretz. Apr. 17, 2018