Each year, the economics department at Oberlin College invites an outside examiner to determine who among its top graduating seniors should receive an honors degree. Last spring, I was that outside examiner. The seven candidates had several hours to complete a written exam (which I wrote), and then a few weeks later, I interviewed each of them face to face.
I thought my readers here might be interested in seeing the written exam. It’s by no means comprehensive; entire areas of economics are omitted. Instead, it’s supposed to test core material and ways of thinking that I believe should mostly be second nature to any top economics graduate.
Where necessary, I’ve translated some of these questions from the original economese to something approximating English. Occasionally, a little has been lost in the translation, but not, I think, too much.
There were ten questions on the exam. I’ll post five today and the remaining five next week.
Here, then, is Part I:
Question 1. When the price of peanuts rises, Frieda reduces her root beer consumption. If Frieda’s income rises, will her root beer consumption go up or down?
Question 2. Bananas cost $6 apiece, except for members of the banana club, who pay $2 apiece.
- Given full knowledge of Thomas’s prefereces, explain how you’d compute his willingness to pay for a membership in the banana club.
- Given knowledge only of Thomas’s demand curve for bananas, explain how you’d estimate his willingness to pay for a membership in the banana club.
- Under what circumstances is your estimate an overestimate? Under what circumstances is it an underestimate?
Question 3. Snidely Whiplash owns all the grocery stores and all the houses in the Yukon Territory. He charges a competitive price for groceries, and rents the houses at the highest price residents (who are all identical) are willing to pay. (If he charged any more, they’d all leave town). True or False: If Snidely raises the price of groceries, he’ll have to lower the price of housing, so he’ll be no better off than before.
Question 4. Discuss the consequences for economic efficiency of giving your father a Barnes and Noble gift card, under various assumptions about how he uses (or doesn’t use) the card.
Question 5. Rank these taxes in order of how much you’d dislike paying them:
- A tax on consumption
- A tax on wages
- A tax on income (including wages, interest and dividends)
Assume that the tax rates are adjusted so that your total tax bill is the same in each case.
(Edited to add): At the request of a reader, I’ve also posted the questions in the orginal economese.