Something inside of me continues to hope for this growing collection of historical economics examinations to attract comments that provide answers to the questions. But at least for now, I am at least adding to the digital historical record of economics education exam by exam and syllabus by syllabus.
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CORE EXAMINATION
Price Theory
Winter, 1964
Preliminary Examination for the Ph.D. and A. M. Degrees
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
- [45 points] Indicate whether each of the following statements is true or false and explain briefly why.
| T F | 1. | An “inferior” good is one for which the marginal utility is negative. |
| T F | 2. | The short-run marginal cost curves cross the long-run marginal cost curve from below (proceeding from left to right) at the quantities corresponding to the points of tangency of their respective average curves. |
| T F | 3. | For a homogeneous production function of degree one, and, for given relative factor prices but varying output, both of the following are true: a. The ratios of the quantities of the various inputs are constant at all levels of outputs. b. The average productivities for each factor are constant at all levels of output. |
| T F | 4. | Suppose you have the following budget data for two periods for a consistent consumer (i.e., a consumer who, in those situations where the same two commodity bundles are within his budget and he chooses one of them, will never choose the other one): prices of all goods in only the first period pi1 for i = 1, 2, …, n) and quantities purchased of all goods (qi1 and qi2 for i=1, 2, …, n). Then it is true that implies that the consumer is “better off” in the first period than in the second. |
| T F | 5. | Consider an individual’s demand functions for two goods, xk and xj. Then the cross elasticity of demand for xk with respect to pik is equal to the cross elasticity of demand for xj with respect to pk when only the substitution terms are considered. |
| T F | 6. | “The more the merrier” is a denial of the law of diminishing marginal utility. |
| T F | 7. | “The increment of product resulting from adding one more worker to a firm should not be attributed exclusively to labor because it results partly from the more intensive working of the other productive factors.” |
| T F | 8. | A tax of 20 per cent on all wages and salaries will decrease the supply of labor by more than a tax of 20 per cent on overtime pay alone. |
| T F | 9. | Carpenters would not receive a wage equal to the value of their marginal product if they were a “specific factor of production” in the industry using their services. |
| T F | 10. | The demand function for labor on the part of a competitive industry can in some cases be more elastic in the neighborhood of a given point if the quantities of other factors are taken as given than if the prices of other factors are taken as given. |
[Note: Question II neatly ripped off from this copy, presumably deleted from the examination]
- [15 points] A substitute for a product is invented. What, if anything, can you say about the effect of this invention on (a) the position; (b) the elasticity of the demand curve for the initial product? (To fix ideas, one example is the effect of the invention of electric shavers on the demand for safety razors; another, and perhaps more widely quoted example, is the effect of the introduction of financial intermediaries on the demand for money.)
- [15 points] We frequently hear it said that labor is cheap and capital dear in a country like the U.S. Such statements seem reasonable, yet it is not clear how one can compare the price of labor (rupees or dollars per hour) with the price of capital (percent per year). Can you suggest a way to interpret the statements so that they make sense?
- [30 points] In the 1880’s there were a class of independent railroad ticket brokers called “scalpers,” who purchased tickets in quantity at reduced prices from the railroads and resold them to the public, typically at prices below the prices posted by the railroads and charged to people who bought tickets at the railroad windows.
In discussing the practice in its 1890 report, the Interstate Commerce Commission argues that (a) it raised the cost of transportation because it made it necessary, “to support the auxiliary force of scalpers,” and (b) also reflected “the avidity of nearly every railroad to do a greater amount of passenger business than any competitor.”
Is (a) correct? Is it consistent with (b)? - [30 points] President Johnson has recently sent to Congress a bill that would require certain industries to pay double the standard wage-rate for overtime. Assuming competitive conditions, what can you say about the effect on (a) prices of products (b) output (c) number of man hours, (d) number of persons employed in (1) the industries affected and (2) other industries?
- [30 points] Currently, the number of taxicabs permitted to operate in the city of Chicago is limited by licensure, no new licenses are being issued, and existing licenses which can be transferred sell for substantial sums. In addition, the price which taxicabs charge is fixed by the city. (A) Suppose restrictions on licensure were lifted but prices continued to be fixed at present levels. What would be the effect on (a) number of cabs, (b) incomes of non-driving owners of cabs, (c) wages of non-owning (i.e., hired) cab drivers?
(B) Suppose the price restrictions were lifted, so cabs could charge whatever they wanted. What would you expect to happen to prices for taxicab rides, both with respect to level and structure?
Source: University of Chicago Archives. George Stigler Papers. Addenda, Box 33, folder “Exams and Prelim Questions”.
Image Source:University of Chicago Photographic Archive, apf4-01703 1923 photo of the University of Chicago band’s bass drum (over 8 feet in diameter). , Special Collections Research Center, University of Chicago Library.