Steven Landsburg, author of The Armchair Economist (and more recently, The Big Questions), has a new blog, and it's pretty good. Today's post: five of the ten questions posed to prospective Honors graduates in the Economics department at Oberlin College.
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.
Answers can be found in the comments section of the original post.