Advanced Micro I – Williams Final Edition

1. Explain what Hayek might mean when he asserts that: “The most significant fact about the price system is the economy of knowledge with which it operates.”

(#97.a, 2014 #3.b)

 
 
 
 
 

2. Give a brief answer to the following:

A person who loses his job through no fault of his own is also unemployed thereafter through no fault of his own.

(#40.d)

 
 

3. An urban rapid-transit line runs crowded trains (200 passengers per car) at rush hours, but very empty trains (ten passengers per car) at off peak hours. A management consultant makes the following argument: “The cost of running a car for one trip on this line is about $50 regardless of the number of passengers. So the per passenger cost is about 25¢ at rush hour but rises to $5 per passenger in off peak hours. Consequently, we had better discourage off-peak hour business.” Explain the fallacy.

“Commutation tickets” sold by some transit systems (reduced-price, multiple-ride tickets) are predominantly used in rush hours. Are such tickets a good idea?

(#42)

 
 
 
 
 
 
 

4. State whether the following is true or false and explain your response:

Existing firms in a cartelized industry prefer to be regulated by government.

 
 
 
 
 
 
 

5. Is the following statement true or false? Explain your answer.

If you were a visitor in some underdeveloped country in which all lending and borrowing are effectively prohibited there would be no way to tell whether there were changes in the interest rate.

(#92, 2014 #2.c)

 
 
 
 

6. Which of the following images is a graph of the standard intertemporal 2-period model?

Enter your answer as a single capitalized letter.

A

econ-graph-6

B

econ-graph-2

C

econ-graph-9

(2014 #1)

7. The literature on the behavior of the firm poses it as a profit maximizer, a wealth maximizer, a growth maximizer, a sales maximizer, a sales maximizer subject to a prescribed profit rate.

Which of these do you use, why, and how do you manage to allow for these other assertions of firm behavior?

(#45)

 
 
 
 
 
 
 

8. Some discount stores advertise that they can sell for less because they buy directly from the factory and sell to the consumer, thus eliminating middlemen. What is the flaw in that reasoning?

(2007 #4.a)

 
 
 
 

9. Do externalities offer unambiguous proof of market inefficiency or is it possible for externalities to be consistent with market efficiency?*

*Hint: Professor Williams takes the mainstream view that a situation is efficient iff it is pareto-optimal.

(#44, part 2)

 
 
 
 

10. True or false: Cost curves are monetized reciprocals of product curves? Explain.

(#76, #104, 2014 2.b)