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A "satisficer" is a person who


A) always chooses the best course of action.
B) often chooses the worst course of action.
C) makes decisions that are merely good enough.
D) studies both economics and psychology.

E) All of the above
F) A) and B)

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State one reason why government intervention may not be a good solution to an asymmetric information problem.

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ANSWER : Possible answers:
1. The privat...

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Which of the following is not an example of a principal trying to solve the moral-hazard problem? The principal


A) calls the agent's references.
B) installs hidden cameras to monitor the agent's behavior.
C) pays the agent efficiency wages.
D) pays the agent a year-end bonus.

E) A) and C)
F) All of the above

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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.


A) Average voter
B) Mean voter
C) Modal voter
D) Median voter

E) B) and C)
F) A) and B)

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Which of the following is an example of signaling?


A) Pat is considering the purchase of a used car. Before making the purchase he has the car checked by an auto mechanic.
B) Zach is applying for a new life insurance policy. Before writing the policy, the insurance company requires Zach to be examined by a doctor.
C) Denise is applying for a new joc. Before hiring her, the firm requires Denise to take a drug test.
D) Marcus is planning to ask for Chaquila's hand in marriage. Before asking her, he buys her a box of her favorite chocolates and takes her to dinner at her favorite restaurant.

E) A) and B)
F) All of the above

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The buyer runs a risk of being sold a good of low quality when there is


A) a principal-agent problem.
B) a moral-hazard problem.
C) a problem involving hidden actions.
D) a problem involving hidden characteristics.

E) None of the above
F) A) and B)

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Robert and Neal are playing the ultimatum game, starting with $100. Based on the coin toss, Robert is the player to propose a division of the $100. If Robert acts as economic theory assumes and Neal acts as experimental evidence shows, Neal will


A) accept Robert's proposal of keeping $99 and offering Neal $1.
B) accept Robert's proposal of keeping $60 and offering Neal $40.
C) reject Robert's proposal of keeping $99 and offering Neal $1.
D) reject Robert's proposal of keeping $60 and offering Neal $40.

E) A) and B)
F) B) and D)

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Informational asymmetry is a difference in


A) efficiency.
B) equality.
C) relevant knowledge.
D) signaling.

E) None of the above
F) C) and D)

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The temptation of imperfectly-monitored workers to shirk their responsibilities is


A) an example of the moral hazard problem.
B) an example of the adverse selection problem.
C) an example of screening.
D) an example of signaling.

E) B) and C)
F) B) and D)

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Table 22-11 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. Table 22-11 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 22-11. Which pairwise voting scheme would result in outcome B? 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 C. Second, voters choose between the winner of the first vote and b. Third, voters choose between the winner of the second vote and D. C) 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. D) 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. -Refer to Table 22-11. Which pairwise voting scheme would result in outcome B?


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 C. Second, voters choose between the winner of the first vote and b. Third, voters choose between the winner of the second vote and D.
C) 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.
D) 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.

E) A) and D)
F) A) and B)

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


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

E) A) and B)
F) A) and C)

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Studies of human decision making have found that people are reluctant to change their minds.

A) True
B) False

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Anthony and Addie are playing the ultimatum game, starting with $100. The coin flip results in Anthony being the one to propose a division of the $100. Anthony proposes that he gets $99 and Addie gets $1. Which of the following statements is correct?


A) Because the 99­1 split isn't fair, Anthony should not make this offer.
B) Conventional economic theory predicts that Anthony will propose a 99-1 split, just as he did.
C) Experimental evidence suggests that Addie will accept the 99­1 split because, even though it isn't fair, it's better than nothing.
D) Economic theory predicts that Anthony should choose a 60-40 split to maximize his payoff.

E) All of the above
F) None of the above

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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?


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) A) and B)

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Arrow's impossibility theorem illustrates the difficulties in creating the perfect voting system.

A) True
B) False

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The Condorcet voting paradox shows that outcomes based on dictatorial preferences do not always obey the property of transitivity.

A) True
B) False

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Table 22-12 The following table shows the preferences for the five voters in a city regarding how to deal with the city's diseased trees. Table 22-12 The following table shows the preferences for the five voters in a city regarding how to deal with the city's diseased trees. A = do nothing B = follow the expert's advice to remove every tree C = remove every 4th tree now and perhaps more later D = use an untested spraying alternative -Refer to Table 22-12. Consider the public policy for dealing with the diseased trees. Using pairwise majority voting with A versus B, then the winner of that vote versus C, then the winner of that vote versus D, which policy wins? A) A B) B C) C D) D A = do nothing B = follow the expert's advice to remove every tree C = remove every 4th tree now and perhaps more later D = use an untested spraying alternative -Refer to Table 22-12. Consider the public policy for dealing with the diseased trees. Using pairwise majority voting with A versus B, then the winner of that vote versus C, then the winner of that vote versus D, which policy wins?


A) A
B) B
C) C
D) D

E) All of the above
F) C) and D)

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Table 22-12 The following table shows the preferences for the five voters in a city regarding how to deal with the city's diseased trees. Table 22-12 The following table shows the preferences for the five voters in a city regarding how to deal with the city's diseased trees. A = do nothing B = follow the expert's advice to remove every tree C = remove every 4th tree now and perhaps more later D = use an untested spraying alternative -Refer to Table 22-12. Consider the public policy for dealing with diseased trees. Based on the preferences in the table, which of the following statements is correct? A) Outcome D is preferred to outcome C overall. B) Outcome B is preferred to outcome C overall. C) Outcome D is preferred to outcome B overall. D) Outcome A is preferred to outcome D overall. A = do nothing B = follow the expert's advice to remove every tree C = remove every 4th tree now and perhaps more later D = use an untested spraying alternative -Refer to Table 22-12. Consider the public policy for dealing with diseased trees. Based on the preferences in the table, which of the following statements is correct?


A) Outcome D is preferred to outcome C overall.
B) Outcome B is preferred to outcome C overall.
C) Outcome D is preferred to outcome B overall.
D) Outcome A is preferred to outcome D overall.

E) A) and D)
F) B) and D)

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The field of economics in which the tools of economics are used to understand the functioning of government is

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According to behavioral economics if people taking an exam were asked to guess the score they would receive, it would be most likely that


A) significantly more people would score below what they guessed than above what they guessed.
B) significantly more people would score above what they guessed than below what they guessed.
C) about the same number of people would score more than they guessed as scored less than they guessed.
D) people's scores would be pretty close to what they guessed. Further, any of the above would be equally likely.

E) A) and B)
F) All of the above

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