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Chicago. Price Theory Exams. Albert Rees (Chicago PhD Alum 1950), 1962

 

 

Albert Rees (1921-1992) received his B.A. from Oberlin College (1943), M.A. (1947) and Ph.D. (1950) from the University of Chicago. He worked himself up the ranks at the University of Chicago (Assistant Professor, 1948-54; Associate Professor, 1954-61; Professor, 1961-66), serving as chair from 1962-1966. He moved on to chairing the economics at Princeton where he was professor (1966-79). He also served as a staff economist at the President’s Council of Economic Advisers and headed President Gerald Ford’s Council on Wage and Price Stability, 1974-75.  Besides once serving as Provost of Princeton University, Albert Rees also served as the President of the Sloan Foundation.

See The Elgar Companion to the Chicago School of Economics, Ross B. Emmett (ed.), Chapter 12 “Albert Rees” by Orley Ashenfelter and John Pencavel. [Downloadable as working paper.]

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PRICE THEORY
Economics 300
Autumn, 1962
Mr. Rees

Chapter assignments will be given in class.

American Economic Association, Readings in Price Theory. Irwin, 1952.

Friedman, Milton, Essays in Positive Economics. University of Chicago Press, 1953.

Leftwich, Richard H., The Price System and Resource Allocation, revised edition. Holt, Rinehart and Winston, 1961.

Marshall, Alfred, Principles of Economics, 8th edition, Macmillan, 1922.

Stigler, George, The Theory of Price, revised edition. Macmillan, 1952.

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Economics 300
Midterm Examination

November 7, 1962
A. Rees

  1. (50 points) Answer the following True, False, or Uncertain and explain your answer briefly. Your score depends on your explanation.
    1. In a free market economy, all consumers participate equally in determining what will be produced.
    2. A free market economy gives ample incentives to conserve natural resources provided that it is clear who owns each unit of the resources.
    3. The cross-elasticity of demand between substitutes is positive.
    4. If two linear demand curves each intersect the price axis, (q =0) the one that has the higher intercept is more elastic at this quantity.
    5. An increase in the price of beef will increase the demand for pork and decrease the demand for beef.
    6. If the market for eggs is in equilibrium an increase in supply will cause only a small change in price.
    7. The elasticity of demand for oranges is greater in absolute value than the elasticity of demand for fruit.
  2. (25 points)
    1. Show by means of an indifference map (axes: oranges and grapefruit) the effect on the consumption of oranges of an increase in their price, the price of grapefruit remaining unchanged. Distinguish the income and the substitution effects. State whether you have used the Hicks or the Slutsky method.
    2. How would your map have differed if the axes had been bread and meat? If they had been bread and butter?
  3. (25 points) Increased costs cause manufacturers to reduce the size of 5 cent chocolate bars from 2-1/2 ounces to 2 ounces. Because the bars are smaller, people eat more of them and consumption rises from 10,000 bars a week to 11,000.
    1. Can these events be shown on an ordinary supply and demand diagram? If so, show them. If not, explain why.
    2. Can the elasticity of demand for chocolate be computed? If so, compute it. If not, explain.

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FINAL EXAMINATION

Economics 300
December 12, 1962
A. Rees

  1. (50 points) Answer each of the following “true,” “false,” or “uncertain” and explain your answer briefly. Your score will depend heavily on your explanation.
    1. If two linear demand curves have the same slope at the same price, then at that price the one for which quantity is largest is least elastic.
    2. An important difference between an indifference map and an isoquant map is that indifference curves never cross.
    3. An important difference between the utility functions depicted by usual indifference maps and production functions is that distances in utility space can be ordered but not measured.
    4. The following conditions are necessary and sufficient for the short-run maximization of monopoly profits: (a) Marginal revenue is equal to marginal cost; (b) price is greater than average variable cost.
    5. An increase in fixed cost caused by an increase in the rate of interest on long run term debt will increase long-run marginal cost but not short-run marginal cost.
    6. An effective legal minimum wage above the prevailing wage will increase the employment of a firm that is a monopsonist in the labor market.
    7. The costs of owner-operated businesses are generally understated because the owners do not pay themselves wages. If they did, the accounting costs would be equal to the economic costs.
    8. The way to produce a given output in the long run at lowest cost is to construct the plant whose short-run average costs are at a minimum at that output.
    9. If a monopolist maximizes profit in the short-run and operates where total revenue is at a maximum, he has no variable costs.
    10. A production function shows constant returns to scale if an increase of 10 per cent in the input of one factor will increase output by 10 per cent.
  2. (20 points) The New York, Ridgewood, and Exurban Railroad operates a commuter passenger service. Two kinds of reduced fares are offered: (1) children under 12 years of age ride at half-fare at all times. (b) on Wednesdays there are special half-fare tickets for adults good on trains leaving after 10:00 a.m. and returning before 4:30 p.m. The railroad has been accused by the New Jersey Commerce Commission of being a discriminating monopolist. Can you defend it against this charge with respect to either or both of its half-fare arrangements? If it is in fact a discriminating monopolist with respect to either arrangement, is it promoting an inefficient use of resources by its pricing practices?
  3. (15 points) (a) Draw the short-run cost curves, demand curve, and marginal revenue curve of a monopolist who is suffering a short-run loss and is minimizing this loss. Indicate the amount of the loss on your diagram. (b) Show the same situation by means of short-run total cost and total revenue curves.
  4. (15 points) A farmer has two plots of land on which he grows corn, plot A and plot B. The following table shows the amount of corn he can produce on each plot with varying applications of fertilizer of a given quality.

Fertilizer Used

 Plot A Plot B
(pounds)

(output in bushels)

0

 10

8

1

 14 13
2 16

17

3

 17 20
4 18

21

5

 17

20

If the price of fertilizer is $1.50 per pound and the price of corn is $1.00 per bushel, how much fertilizer will he use on each plot? (The figures are not intended to be realistic.) Under what circumstances would he use four pounds on each plot?

 

Source: Duke University. David M. Rubenstein Rare Book & Manuscript Library. Economists’ Papers Archive. Albert Rees Papers, Box 1, Folder “Economics 300”.

Image Source: Duke University. David M. Rubenstein Rare Book & Manuscript Library. Economists’ Papers Archive. Albert Rees Papers, Box 1, Folder “Rees Personal”.