A copy of the reading list for the first quarter of price theory at the University of Chicago taught by Arnold Harberger in the autumn quarter of 1955 has been transcribed and posted earlier. That copy was found in Milton Friedman’s papers at the Hoover Institution Archives. Copies of the two mid-term exams and the final exam for the same course in 1957 were found in Zvi Griliches’ papers in the Harvard University Archives. While not a perfect match, some items might have been added/subtracted to the later course, price theory à la Harberger in the mid-1950sis better reflected in these two posts together now.
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Economics 300A
Hour Examination
November 5, 1957
(60 points)
- True, False, or Uncertain. In each case write a paragraph explaining your answer. Your grade will depend heavily on your explanation.
- The price elasticity of demand for a good will be higher, the higher is the income elasticity of demand for that good.
- If X and Y are substitutes, a decline in the price of X can lead to an increase in the amount of Y demanded only if Y is an inferior good.
- If a particular producer of grapefruit produces 10 percent of the total supply of grapefruit, the elasticity of demand facing that producer must be at least -10.
- If the cross-elasticity of demand for X with respect to the price of Y is .5, the cross elasticity of demand for Y with respect to the price of X will also be .5.
- The demand curve for a commodity which includes the “income effect” is necessarily more elastic than the demand curve for the same commodity which includes only the substitution effect.
- Food and “all other commodities” cannot be complements.
(15 points)
- Derive the expression for the elasticity of demand facing a particular producer in terms of the elasticity of “total demand” in the market and of the elasticity of “other supply”.
(25 points)
- Using indifference curves, derive the supply curve of labor as A function of real wages. Distinguish between the “income effect” and the substitution effect. State what, if any, will be the circumstances under which a rise in real wages will lead to a reduction in the quantity of labor offers.
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Economics 300A
Hour Examination
4 December 1957
Mr. Harberger
(48 points)
- True, False or Uncertain. In each case write a few sentences explaining your answer.
- If the firms in the coal industry were to merge into one single firm, the demand curve for coal miners would become more elastic.
- Marginal cost exceeds average cost wherever marginal cost is rising.
- In the case in which factors combine in fixed proportions to produce a product X, the elasticity of demand in industry X for a factor will be greater, the larger is the fraction of the total costs of producing X which is spent on hiring the factor in question.
- A firm having monopsony power in the market for its labor will hire workers up to the point where their wage is equal to their marginal value product (marginal physical product times marginal revenue), not to the value of their marginal physical product.
- If, at a point in a homogeneous production function, the marginal product of A is rising, the marginal product of B will be negative. (Consider A and B as the only two factors.)
- If, at a point in a homogeneous production function, the marginal product of B is negative, the marginal product of A will be rising. (Consider A and B as the only two factors.)
(34 points)
- Discuss and comment on Marshall’s four rules of derived demand
(18 points)
- Discuss the relationship between short run and long run cost curves. Is a shorter run marginal cost curve always more elastic than a longer run marginal cost curve going through the same point on the long run average cost curve
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Final Examination
Economics 300A
Autumn, 1957
(70 points)
- True, False, or Uncertain. In each case write a few sentences explaining your answer. Your grade will depend heavily on your explanation.
- If the United States exports one tenth of its coal, the elasticity of supply of domestic coal being unity, the elasticity of supply of U.S. coal exports must be at least 10.
- If the price of X rises while the price of X stays constant, the amount of Y demanded will always increase, so long as X and Y are substitutes. (Assume money income and other prices remain unchanged.)
- The own-price elasticity of demand for a commodity must always equal or exceed, in absolute value, the cross elasticity of demand for that commodity with respect to the price of any other commodity.
- The own-price elasticity of demand for a commodity must always equal or exceed, in absolute value, the marginal propensity to consume that commodity.
- When the production function is such that factors of production combine with each other in fixed proportions to produce a product, the own price elasticity of demand for the use of any of the factors in the production of the product must be less than the price elasticity of demand for the product. (Assume that the production of the product in question is competitive.)
- The income elasticity of demand for a commodity is the marginal propensity to consume that commodity divided by the average propensity to consume that commodity.
- The elasticity of demand for labor in the production of automobiles will be lower in the case in which the quantities of other factors are given than in the case in which the prices of other factors are taken as given.
- The elasticity of demand facing a monopolist will be lower than the elasticity of demand facing the same industry if it were competitive.
- The welfare cost of a 5 percent tax on automobiles is the same as the welfare cost of a 5 percent subsidy on all goods and services other than automobiles.
- The welfare cost per dollar of tax receipts of a 5 percent tax on automobiles is the same as the welfare cost per dollar of tax receipts of a 5 percent tax on all goods and services other than automobiles.
- If, at a point in a production function which is homogeneous (of degree 1), the marginal product of factor B is negative, the marginal product of factor A will be rising (in the sense that the marginal product of A will be higher when the proportion of factor A to factor B is slightly increased). Assume that A and B are the only two factors.
- The supply curve of labor can be backward bending only if leisure is an inferior good.
- The demand for the services of a factor of production in a particular industry will be more elastic, the larger is the share of that factor in the total costs of the industry in question.
- All short run average cost curves are tangent at (at least) one point to the long run average cost curve.
(15 points)
- Outline the economics of the fishing industry. What resemblance, if any, do you see between the economics of the fishing industry under conditions of competition and the economics of monopolistic competition.
(15 points)
- Indicate, using supply and demand diagrams, what is the welfare cost of a tariff. Assume that the tariff is on a product (woolen cloth) in which the domestic demand is partly met by domestic supplies and partly met by imports. The tariff, of course, is a tax only on the imports. Assume that the imported product and the domestic product are for all relevant purposes homogeneous. What role does the elasticity of domestic demand for woolen cloth play in your measure of welfare cost? The elasticity of domestic supply of woolen cloth? The ratio of domestic supply to domestic demand?
Source: Harvard University Archives. Papers of Zvi Griliches, Box 130, Folder “Syllabi and exams, 1955-1959”.
Image Source: Arnold C. Harberger, 1957 Fellowship in Economics from the John Simon Guggenheim Memorial Foundation. Colorized by Economics in the Rear-View Mirror.