Question 1

A woman gives her boyfriend a birthday present.The gift could be viewed by the boyfriend as a

Accepted Answer

A)   moral hazard problem.
B)   screening device.
C)   signal of how much she cares for him.
D)   All of the above are correct.E) A) and D)
F) All of the above

Question 2

Signaling is an action taken by an uninformed party to induce an informed party to reveal information.

Accepted Answer

A) True 
 B)False

Question 3

Kenneth Arrow proved that the voting system that satisfied all of the properties of his "perfect" voting system was

Accepted Answer

A)   one in which a single person (a "dictator") imposes his preferences on everyone else.
B)   pairwise majority voting.
C)   majority voting that is not pairwise.
D)   None of the above is correct.Arrow proved that no voting system can satisfy all of the properties of his "perfect" system.E) B) and D)
F) C) and D)

Question 4

Informational asymmetry may apply to a hidden action or hidden characteristic where the informed party may be reluctant to reveal relevant information.

Accepted Answer

A) True 
 B)False

Question 5

In American politics,we often observe that during a campaign,the Democratic and Republican positions on many issues are similar,which illustrates

Accepted Answer

A)   Arrow's impossibility theorem.
B)   the Condorcet paradox.
C)   a Borda count.
D)   the median voter theorem.E) B) and C)
F) A) and D)

Question 6

Economic theory assumes people are always rational.Yet observation indicates that people do not always behave rationally.Which of the following is not a systematic mistake people make in their decisionmaking?

Accepted Answer

A)   People often interpret information to fit beliefs already held.
B)   People place too much emphasis in their decisionmaking on a few extreme situations of which they are aware.
C)   People tend to view current prices differently than they view future prices.
D)   People are too sure of their own abilities.E) B) and C)
F) All of the above

Question 7

Information asymmetry refers to

Accepted Answer

A)   the tendency of a person who is imperfectly monitored to engage in dishonest or otherwise undesirable behavior.
B)   the tendency for the mix of unobserved attributes to become undesirable from the standpoint of an uninformed party.
C)   an action taken by an informed party to reveal private information to an uninformed party.
D)   a difference in access to relevant knowledge.E) A) and B)
F) None of the above

Question 8

The two major problems caused by asymmetric information are the moral-hazard problem and the principal-agent problem.

Accepted Answer

A) True 
 B)False

Question 9

Which voter is the voter whose views on a policy issue are in the middle of the spectrum,with half of the voters on one side of this voter's view and half on the other side.

Accepted Answer

A)   Average voter
B)   Mean voter
C)   Modal voter
D)   Median voterE) C) and D)
F) B) and C)

Question 10

In the case of a moral-hazard problem,which of the following is not a way for the principal to encourage the agent to act more responsibly?

Accepted Answer

A)   the principal could better monitor the agent
B)   the principal could pay the agent above-equilibrium wages
C)   the principal could delay payment to the agent
D)   the principal could pay the agent below-equilibrium wagesE) B) and C)
F) A) and D)

Question 11

A home has been on the market for an extended amount of time without much interest from buyers.The sellers decide to purchase and include a home warranty insuring against major defects with the home.The warranty is an example of a(n)

Accepted Answer

A)   signal.
B)   screen.
C)   moral hazard.
D)   adverse selection.E) A) and B)
F) B) and C)

Question 12

Harold has always driven cars made by Universal Motors.The last two Universal Motors cars that Harold purchased have had major engine problems resulting in Harold incurring significant cost.Consumer Reports has consistently given Universal Motors poor ratings.Still,Harold plans to purchase another Universal Motors car next fall.Harold's behavior is an example of which systematic mistake that people make?

Accepted Answer

People are...

Question 13

Margaret knows that she needs to save 20% of her annual income for retirement.However,she spends 90% of her income each year.This is an indication that Margaret's preferences are

Accepted Answer

A)   irrational.
B)   inconsistent over time.
C)   satisficing rather than maximizing.
D)   undefined.E) C) and D)
F) B) and D)

Question 14

Table 22-15
The town of Portsmouth is considering a renovation to the high school.The voters in Portsmouth have different preferences on the budget for the renovation as displayed below.
 
-Economic policy that appears to be ideal in an economics textbook may not be the final policy that is approved by elected politicians because

Accepted Answer

A)   sometimes a politician's self interest may conflict with the national interest.
B)   economics professors have a notoriously low voting rate.
C)   only policies advocated by the President's Council of Economic Advisors receive enough national attention to interest politicians.
D)   Economists cannot explain why politicians do not implement the ideas from their textbooks.E) All of the above
F) C) and D)

Question 15

In his 1951 book,Social Choice and Individual Values,Kenneth Arrow used the term "transitivity" to mean

Accepted Answer

A)   A beats B only if everyone prefers A to B.
B)   if everyone prefers A to B,then A beats B.
C)   if A beats B and B beats C,then A must beat C.
D)   everyone who is eligible to vote must vote;otherwise,the outcome is invalid.E) All of the above
F) A) and B)

Question 16

Martha routinely has her prescriptions filled at her local SVC pharmacy.Each time that Martha goes to pick up a prescription,there is some problem and Martha has to return to the pharmacy later to get the prescription.Martha finds these return trips very annoying and time-consuming,but continues to request that her doctor send her prescriptions to this pharmacy even though there are several other options in her town.Which of the following is correct?

Accepted Answer

A)   Economists would say that Martha is behaving rationally.
B)   Martha's behavior appears to exhibit inertia.
C)   Martha's behavior is inconsistent over time.
D)   Martha gives too much weight to a small number of vivid observations.E) A) and D)
F) B) and D)

Question 17

Table 22-9
 
-Refer to Table 22-9.The table shows the preferences of 100 voters over three possible outcomes: A,B,and C.In pairwise majority voting in which voters choose first between A and B and then choose between the winner of the first vote and C,

Accepted Answer

A)   outcome A will win the election.
B)   outcome B will win the election.
C)   outcome C will win the election.
D)   the outcome of the election cannot be determined with the given information.E) B) and D)
F) All of the above

Question 18

Table 22-4
Five voters must choose from among four options: A,B,C,or D.Each voter's preferences are summarized in the table below.Options higher in the table are more preferred by the voter.
 
-Refer to Table 22-4.Which pairwise voting scheme would result in outcome D?

Accepted Answer

A)   First,choose between A and B.Second,voters choose between the winner of the first vote and C.Third,voters choose between the winner of the second vote and D.
B)   First,choose between B and D.Second,voters choose between the winner of the first vote and C.Third,voters choose between the winner of the second vote and A.
C)   First,choose between C and D.Second,voters choose between the winner of the first vote and A.Third,voters choose between the winner of the second vote and B.
D)   First,choose between C and D.Second,voters choose between the winner of the first vote and B.Third,voters choose between the winner of the second vote and A.E) B) and C)
F) None of the above

Question 19

Scenario 22-4
Suppose that residents of a town are asked to vote on the best way to improve the safety of an intersection.The three choices are: a stoplight,a 4-way stop,and a 2-way stop.The voters are divided into three groups based on their preferences.
Voter Type
 
-Refer to Scenario 22-4.If the vote were conducted according to a Borda count system where each person's first choice receives 3 points,second choice 2 points,and third choice 1 point,the result would be

Accepted Answer

A)   a 2-way stop.
B)   a 4-way stop.
C)   a stoplight
D)   a tie between a 2-way stop and a stoplight.E) A) and B)
F) A) and C)

Question 20

Which of the following frontier areas of economics incorporates some findings from psychology into the study of economic issues?

Accepted Answer

A)   Asymmetric information
B)   Political economy
C)   Behavioral economics
D)   Public economicsE) None of the above
F) B) and D)

Exam 22: Frontiers of Microeconomics

Which voter is the voter whose views on a policy issue are in the middle of the spectrum,with half of the voters on one side of this voter's view and half on the other side.

Correct Answer
verified

A home has been on the market for an extended amount of time without much interest from buyers.The sellers decide to purchase and include a home warranty insuring against major defects with the home.The warranty is an example of a(n)

Correct Answer
verified

Which of the following frontier areas of economics incorporates some findings from psychology into the study of economic issues?

Correct Answer
verified

Margaret knows that she needs to save 20% of her annual income for retirement.However,she spends 90% of her income each year.This is an indication that Margaret's preferences are

Correct Answer
verified

The two major problems caused by asymmetric information are the moral-hazard problem and the principal-agent problem.

Correct Answer
verified

Correct Answer
verified

A woman gives her boyfriend a birthday present.The gift could be viewed by the boyfriend as a

Correct Answer
verified

In American politics,we often observe that during a campaign,the Democratic and Republican positions on many issues are similar,which illustrates

Correct Answer
verified

Economic theory assumes people are always rational.Yet observation indicates that people do not always behave rationally.Which of the following is not a systematic mistake people make in their decisionmaking?

Correct Answer
verified

Table 22-4 Five voters must choose from among four options: A,B,C,or D.Each voter's preferences are summarized in the table below.Options higher in the table are more preferred by the voter. -Refer to Table 22-4.Which pairwise voting scheme would result in outcome D?

Correct Answer
verified

Table 22-9 -Refer to Table 22-9.The table shows the preferences of 100 voters over three possible outcomes: A,B,and C.In pairwise majority voting in which voters choose first between A and B and then choose between the winner of the first vote and C,

Correct Answer
verified

Signaling is an action taken by an uninformed party to induce an informed party to reveal information.

Correct Answer
verified

Informational asymmetry may apply to a hidden action or hidden characteristic where the informed party may be reluctant to reveal relevant information.

Correct Answer
verified

In his 1951 book,Social Choice and Individual Values,Kenneth Arrow used the term "transitivity" to mean

Correct Answer
verified

Correct Answer
verified
People are...
View Answer

Kenneth Arrow proved that the voting system that satisfied all of the properties of his "perfect" voting system was

Correct Answer
verified

Information asymmetry refers to

Correct Answer
verified

Correct Answer
verified

In the case of a moral-hazard problem,which of the following is not a way for the principal to encourage the agent to act more responsibly?

Correct Answer
verified

Correct Answer
verified

Exam 22: Frontiers of Microeconomics

Which voter is the voter whose views on a policy issue are in the middle of the spectrum,with half of the voters on one side of this voter's view and half on the other side.

Correct AnswerverifiedShow Answer

A home has been on the market for an extended amount of time without much interest from buyers.The sellers decide to purchase and include a home warranty insuring against major defects with the home.The warranty is an example of a(n)

Correct AnswerverifiedShow Answer

Which of the following frontier areas of economics incorporates some findings from psychology into the study of economic issues?

Correct AnswerverifiedShow Answer

Margaret knows that she needs to save 20% of her annual income for retirement.However,she spends 90% of her income each year.This is an indication that Margaret's preferences are

Correct AnswerverifiedShow Answer

The two major problems caused by asymmetric information are the moral-hazard problem and the principal-agent problem.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A woman gives her boyfriend a birthday present.The gift could be viewed by the boyfriend as a

Correct AnswerverifiedShow Answer

In American politics,we often observe that during a campaign,the Democratic and Republican positions on many issues are similar,which illustrates

Correct AnswerverifiedShow Answer

Economic theory assumes people are always rational.Yet observation indicates that people do not always behave rationally.Which of the following is not a systematic mistake people make in their decisionmaking?

Correct AnswerverifiedShow Answer

Table 22-4 Five voters must choose from among four options: A,B,C,or D.Each voter's preferences are summarized in the table below.Options higher in the table are more preferred by the voter. -Refer to Table 22-4.Which pairwise voting scheme would result in outcome D?

Correct AnswerverifiedShow Answer

Table 22-9 -Refer to Table 22-9.The table shows the preferences of 100 voters over three possible outcomes: A,B,and C.In pairwise majority voting in which voters choose first between A and B and then choose between the winner of the first vote and C,

Correct AnswerverifiedShow Answer

Signaling is an action taken by an uninformed party to induce an informed party to reveal information.

Correct AnswerverifiedShow Answer

Informational asymmetry may apply to a hidden action or hidden characteristic where the informed party may be reluctant to reveal relevant information.

Correct AnswerverifiedShow Answer

In his 1951 book,Social Choice and Individual Values,Kenneth Arrow used the term "transitivity" to mean

Correct AnswerverifiedShow Answer

Correct AnswerverifiedPeople are...View AnswerShow Answer

Kenneth Arrow proved that the voting system that satisfied all of the properties of his "perfect" voting system was

Correct AnswerverifiedShow Answer

Information asymmetry refers to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the case of a moral-hazard problem,which of the following is not a way for the principal to encourage the agent to act more responsibly?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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People are...
View Answer

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