DEPARTMENT OF ECONOMICS
SAN JOSE STATE UNIVERSITY
MASTER’S COMPREHENSIVE EXAMINATION
MAY 6, 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 121/221: Holian) Describe the nature of competition, the key assumptions, and policy
implications, of the Cournot and Schumpeterian theories of industrial organization.
3B. (Econ 212: Haight) Institutional environments are important for growth.
a. Give three examples of formal institutions and how they impact economic growth.
b. Describe Fukuyama’s position on the impact of cultural differences on those
institutions you describe in part a.
3C. (Econ 166: Pogodzinski) Answer any two of the following:
a. What is the hierarchy of cities? What explains the hierarchy of cities?
b. Assess the empirical evidence on the strength of economies of localization and economies
of urbanization.
c. Explain how transportation costs affect the bid-rent functions of firms and households,
respectively.
d. Give an example of an urban externality and explain how it affects the distribution of firms
and households.
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DEPARTMENT OF ECONOMICS
SAN JOSE STATE UNIVERSITY
MASTER’S COMPREHENSIVE EXAMINATION
MAY 6, 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 benefits of raising admission
at the local pool from $0 (free admission) to $1. All revenue collected will be used to offset
taxes, i.e. taxes will be reduced by the amount of revenue collected. The analyst has conducted
phone surveys with 300 local municipal swimming pool managers, and has estimated the
following demand function:
VISITS = 12.4 + 2.3(POP) - 1.0(FEE)
(3.1)
(0.6)
(0.1)
where VISITS is visits to the municipal pool per year (in thousands), POP is town population (in
thousands) and FEE is admission price charged (in dollars). Standard errors are in parentheses,
and r2 is 0.87. Assume the town population is 2,000.
a. What are annual gross benefits if no admission is charged?
b. What are annual gross benefits if $1 is charged?
c. What are gross benefits if $1 is charged, and the marginal excess tax burden (METB) is
0.25?
d. Assume that collecting admission charges will increase variable costs by $1 per year,
as lifeguards will not be able to monitor admissions from their watch chairs, and part-time
cashiers will need to be hired to collect fees. Assuming METB = 0.25, lifeguards are paid their
opportunity cost, and there are no other costs, should the city charge a one dollar fee, or keep
admission free. Why or why not?
e. Now assume there are fixed costs (which include the cost of a cash register and a
cashier's booth) of $40, in addition to the variable costs mentioned in part d above. What is the
net present value of implementing the one dollar fee collection, assuming the free admission
policy continues forever, METB is .25, and the discount rate is 0.05?
f. Briefly, what does an r2 of 0.87 tell us?
g. Which of the estimated coefficients in the demand equation are statistically significant?
h. Briefly, what does it mean for an estimated coefficient to be statistically significant?
3E. (Econ 232: Foldvary) Near the city of Econburg is a forest with wildlife. The land is owned
by the city government, or by the city residents with the city council as its agent. A developer is
offering to buy the land from the city and build housing. The gain to the city would include the
sale of the land and the property tax paid by the homeowners. The loss would be the value of the
forest such as for hiking and for the wildlife. Forest fires are not a danger to the city, as the forest
is on the other side of a wide river, which also keeps the wildlife out of the city. The forest has no
maintenance cost. Your task as an economic adviser is to apply a conceptual cost-benefit analysis
in order to make a recommendation to the council as to how to make the optimal decision,
whether to sell the land to the developer or to keep it as a forest preserve.
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. Identify three examples of “law without romance” and use
these examples to construct a general argument that conveys your understanding of law without
romance.
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DEPARTMENT OF ECONOMICS
SAN JOSE STATE UNIVERSITY
MASTER’S COMPREHENSIVE EXAMINATION
MAY 6, 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?
3H. (Econ 165: Pogodzinski) Answer any two of the following:
a. Define scale economies and give an example that shows why the concept of scale
economies is important in analyzing regional economics.
b. Identify three specific functionalities of geographic information systems (GIS) software
that make it useful for analyzing regional economies. Explain the usefulness of each functionality
with an application to regional economics.
c. Why do firms cluster?
d. Explain the Location Quotient.
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