DEPARTMENT OF ECONOMICS
SAN JOSE STATE UNIVERSITY
MASTER’S COMPREHENSIVE EXAMINATION
DECEMBER 2, 2011
6:00 P.M. TO 9:30 P.M.
PROCTOR: J. HUMMEL
INSTRUCTIONS:
1.
Answer ONLY the specified number of questions from the options provided in each
section. Do not answer more than the required number of questions. Each section takes
one hour.
2.
Your answers must be on the paper provided. No more than one answer per page. Do not
answer two questions on the same sheet of paper.
3.
If you use more than one sheet of paper for a question, write “Page 1 of 2” and
“Page 2 of 2.”
4.
Write ONLY on one side of each sheet. Use only pen. Answers in pencil will be
disqualified.
5.
Write ------ END ----- at the end of each answer.
6.
Write your exam identification number in the upper right-hand corner of each sheet of
paper.
7.
Write the question number in the upper right-hand corner of each sheet of paper.
Section 3: Applied Economics—Answer Any Two Questions.
3A. (Econ 221: Holian) A standard result taught in every principles of microeconomics class is
that with homogeneous firms, perfect competition drives profits down to zero. With
heterogeneous firms, an individual firm may earn Ricardian rents if it owns a superior resource
that lowers production costs, but these rents are not usually considered to be economic profit
because the scare resources that the firm owns (superior land, in Ricardo’s original formulation)
can be sold and thus have a higher opportunity cost. But considering the arguments of the
resource-based view, can you carefully describe a situation where, with heterogeneous firms,
Ricardian rents can be considered economic profit, and this profit can persist in the long-run,
even under perfectly competitive conditions?
3B. (Econ 212: Brady) What do you understand by the concept of economic growth? What do
you understand by the concept of economic development? Can we have one without the other?
Support your answer by reference to historical and contemporary experience.
3C. (Econ 190A: Brady) Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of
Nations was clearly an important book in economics. How might historians of economic thought
defend a claim that he inaugurated a “revolution” in theory and/or policy? Do you think they
would be justified in doing so? Explain your answer.
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DEPARTMENT OF ECONOMICS
SAN JOSE STATE UNIVERSITY
MASTER’S COMPREHENSIVE EXAMINATION
DECEMBER 2, 2011
6:00 P.M. TO 9:30 P.M.
PROCTOR: J. HUMMEL
3D. (Econ 205A: Holian) An analyst is trying to determine the net social benefits generated by
the local public swimming pool. At the current admission price of $1.00, 600 individuals visit the
pool annually. The total cost of the pool is $900 annually. Thus, the pool runs a deficit of $300
annually.
a. From the information given above, can we conclude that the net social benefits of the
pool are negative? Why or why not?
b. Assume a review of economic studies has found that a typical elasticity of demand for
community pools with $1 admission prices is 1.5. Explain how this information can be used to
calculate net social benefits.
c. Calculate net social benefits of the pool based on your answer to question b.
d. Could changing the admission fee raise net social benefits? If so, should the fee be
raised or lowered? Why? Assume that the cost of running the pool does not depend on the
number of visitors.
e. What admission fee would maximize net social benefits? Continue to assume that the
cost of running the pool does not depend on the number of visitors.
3E. (Econ 232: Foldvary) Answer all three:
a. Contrast how contractual private communities (homeowner associations, condominiums,
hotels) pay for their club goods, versus how local governments usually obtain payments for their
collective goods.
b. Explain the impact on the economy from the two types of finance.
c. Explain why there is this difference in collective financing between the two types of
communities.
3F. (Econ 200: Lopez) James M. Buchanan once defined public choice theory as "politics
without romance.” In recent years, scholars have been studying the incentives that drive
outcomes in law and the legal system. Discuss in detail three examples of “law without romance”
and use these examples to construct a general argument to what extent public choice analysis is
useful for explaining certain areas of the law.
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DEPARTMENT OF ECONOMICS
SAN JOSE STATE UNIVERSITY
MASTER’S COMPREHENSIVE EXAMINATION
DECEMBER 2, 2011
6:00 P.M. TO 9:30 P.M.
PROCTOR: J. HUMMEL
3G. (Econ 139: Kropelnicki) This is a several part question covering diversification and the
Capital Asset Pricing Model. Each part is equally weighted:
a. Risk can be defined in several ways. Specifically in capital markets, what are the two ways
we define the risk? Use a graph to clearly illustrate how you can reduce risk through
diversification and portfolio risk management– clearly show which risk is eliminated and how
diversification works. Clearly label all elements of your graph.
b. Application of the Capital Asset Pricing Model—CAPM:
 Of the two risks discussed in question number one (above), which one is used in the
CAPM? This risk is also commonly known as?
 Please use a graph to clearly illustrate risk and returns according to the CAPM model
and how it changes as risk increases and decreases. Clearly label your graph.
 Please explain some of the issues or shortfalls of the CAPM and Beta management?
c. In thinking about the CAPM and what is currently going on with European debt from
various countries, how would you describe the type of risk associated with this crisis? Why do
you think it should be classified this way? If an investor wants to completely avoid this type of
risk, what should he or she do?
3H. (Econ 166: Pogodzinski) Answer any two of the following:
a. What factors explain the suburbanization of jobs in the U.S. after World War II?
b. What are economies of localization and what causes economies of localization? Give an
example of economies of localization.
c. Different industries exhibit different degrees of localization economies. Give examples of
industries with strong localization economies and industries with weak localization economies.
What factors determine the strength of localization economies in an industry?
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