Categories
Courses Exam Questions M.I.T. Suggested Reading Syllabus

M.I.T. Capital Theory, Uncertainty, Welfare Economics. Half-semester Core Microeconomics. Samuelson, 1975

From my files from graduate school I have transcribed the syllabus and final exam for the fourth of the four half-semester core microeconomic theory courses taught at M.I.T. during the academic year 1974-75. The topics of capital theory, uncertainty and welfare economics fell to Paul Samuelson. The preceding three half-semester microeconomics theory courses were taught by Robert Bishop, Martin Weitzman and Hal Varian.

 

______________________

READING LIST FOR 14.124
P. A. Samuelson
SPRING 1975

MICROECONOMIC THEORY

I. CAPITAL THEORY

  1. I. Fisher

Theory of Interest
Part II, all; Part I, Chs. 1,3; Part III, Chs. 10,11.

  1. E. Böhm-Bawerk

Positive Theory of Capital
Book V, all; Book VI, Chs. 6,7,8.

  1. R. M. Solow

“A Contribution to the Theory of Economic Growth”
Quarterly Journal of Economics, February, 1956; pp. 65-94.

Capital Theory and the Rate of Return
(DeVries Lectures) North-Holland, Amsterdam, 1963.

  1. T. Koopmans

Three Essays, pp. 105-126.

  1. F. Ramsey

E.J., 1928

  1. N. Kaldor

“Alternative Theories of Distribution”
RES, 1955

  1. Sraffa

Production of Commodities by Means of Commodities
Chs. 1, 2, 3.

  1. Dorfman-Samuelson-Solow

Linear Programming and Economic Analysis
Chs. 11, 12.

  1. A. Samuelson

“A Summing Up”
QJE, 1966

II. ECONOMICS OF UNCERTAINTY

  1. K. Arrow

Theory of Risk Bearing
Chs. 3,1,2,4.

  1. J. Tobin

RES, 1958

  1. H. Markowitz

Portfolio Selection
sample

III. MODERN WELFARE ECONOMICS

  1. A. Bergson [A. Burk]

“A Reformulation of Certain Aspects of Welfare Economics”
QJE, 52 (February 1938)
pp. 310-334

  1. J. Hicks

“The Foundations of Welfare Economics”
EJ, 49 (December 1939)
pp. 696-712

  1. P. A. Samuelson

Foundations of Economic Analysis (Harvard University Press, Cambridge, Mass., 1947)
Chapter 8, “Welfare Economics”

  1. P. A. Samuelson

“The Pure Theory of Public Expenditure”
Review of Economics and Statistics, 36 (November 1954)
pp. 387-389

reproduced as
Chapter 92
The Collected Scientific Papers of Paul A. Samuelson, Vol. II
MIT Press, Cambridge, Mass., 1966; editor: J.E. Stiglitz

  1. K. Arrow

Social Choice and Individual Values, 1951
Cowles Foundation for Research in Economics, Monograph #12
Wiley, New York, second edition, 1963

  1. J. Rawls

A Theory of Justice
Harvard University Press, Cambridge, Mass., 1971

__________________

Background Reading

  1. A. C. Pigou

The Economics of Welfare, 1920
Macmillan, London, 4th edition, 1932
reprinted in new appendices, 1952

  1. L. Robbins

An Essay of the Nature and Significance of Economic Science, 1932
Macmillan, London, 2nd edition, 1935

  1. van der Graaf

Theoretical Welfare Economics
Cambridge University Press, London, 1957, paperback

______________________

 

FINAL EXAM
14.124
MAY 20, 1975

This is a 1 ½ hour exam. You may take up to an extra half hour, but only if you need it and not in order to establish extra credit for all you know.
Answer any 3 of the following four questions, thus allowing about one half hour for each.

 

  1. Society consists of 2N people [equal numbers of men (i=1) and women (i=2)] who will live and consume for two periods: t=1,2, or now and tomorrow. Also, society has a Solow neoclassical production function:

C(t) + K(t+1) = F[L(t),K(t)]

All 2N people have the same labor, namely Li(t) = 1/2N. The women or men possesss equal shares in the initial capital good, K(1) = k/2N, but it is an unknown of the problem to find out what will be K(2).

Intertemporal tastes of the representative man and woman involve the same concave u[C(t)] function, and with equal Böhm-Fisher subjective time preference factors, ρ1 and ρ2, in:

U1 = u[C1(1)] + u[(C1(2)]/(1+ρ1), U2 = u[C2(1)] + u[(C2(2)]/(1+ρ2), ρ1 = ρ2.

(You may set N=1 to simplify your expositions if you wish to do so.)
The equilibrium is now determinable.

(a)  Describe graphically, and/or mathematically, and/or literally, how Irving Fisher or any modern economist would determine the equilibrium for:

C1(1)*, C1(2)*, C2(1)*, C2(2)*, K(2)*; r*, the rate of interest between period 1 and 2. (Hint: Will women lend to men or borrow from them?)

(b)  Very briefly, modify your above answer to show what will happen when men are more “impatient” than women, so that ρ1 > ρ2.

  1. Prove that fair-game investing or gambling will (a) be avoided by what class of people?; (b) be embraced by what class of people? How do you reconcile under (a) the purchases of insurance at unfavorable-game premiums?
  1. Lerner, Lange, and others wish to utilize market pricing in achieving maximization of a social welfare function appropriate to a socialist state where (a) all non-labor inputs are owned by the State; (b) “people’s changing tastes are to count,” (c) where the bureaucrats responsible for the different industries do not necessarily in every case face constant returns to scale and classical returns.

Describe how goods and services should be priced, how people’s total spendable incomes are to be determined, and also any special problems that might arise for the Lerner-Lange-Smith VISIBLE HAND.

  1. Bentham says that people may differ in the heights of their marginal utility from the same number of chocolates (or real incomes). But he believes that this difference in intensities of enjoyments is distributed “in about the same way among the very rich and the very poor.” What kind of income tax formula would he then presumably want to legislate? What “incentive effects” would you want to keep in mind appraising this solution?

Source: Personal copies

Image Source: Left to right: Robert C. Merton, Jerome Bert Wiesner and Paul A. Samuelson with Vol. 3 of Samuelson’s Collected Scientific Papers (1972). MIT Webmuseum.