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Table 22-21 The following table shows the number of voters preferring various amounts of spending to develop a river to make it more attractive for canoeing and kayaking. Table 22-21 The following table shows the number of voters preferring various amounts of spending to develop a river to make it more attractive for canoeing and kayaking. -Refer to Table 22-21. What is the preferred spending amount of the median voter? A) $1.0 B) $1.5 C) $2.0 D) None of the above are correct. -Refer to Table 22-21. What is the preferred spending amount of the median voter?


A) $1.0
B) $1.5
C) $2.0
D) None of the above are correct.

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

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Majority rule will produce the outcome most preferred by the median voter, as demonstrated by the


A) Arrow impossibility theorem.
B) Condorcet paradox.
C) pairwise voting proposition.
D) median voter theorem.

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

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Which of the following students exhibits satisficing behavior?


A) Mick studies his economics notes every night so that he can be sure to earn a perfect score on his exam.
B) Bill studies his economics notes for a few hours the night before the test because he will be satisfied with a C on his exam.
C) Marguerite studies extensively as she will only be satisfied with a very high score.
D) None of these students exhibits satisficing behavior.

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

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The problem that arises when one person performs a task on behalf of another person is called the lemons problem.

A) True
B) False

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Frequently it is the case that: (1) A worker knows more than his employer about how much effort he puts into his job, and (2) the seller of a used car knows more than the buyer about the car's condition.


A) Neither (1) nor (2) serves as an example of asymmetric information.
B) Both (1) and (2) serve as examples of asymmetric information.
C) Neither (1) nor (2) serves as an example of a hidden action.
D) Both (1) and (2) serve as examples of hidden action.

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

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​Suppose there are 3 possible outcomes to a vote: A, B, and C. If voters prefer A to B, C to B, and A to C, which of the following concepts are violated?


A) ​Transitivity
B) ​Median Voter Theorem
C) ​Arrow's Impossibility Theorem
D) ​None of the above concepts are violated

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

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Majority rule will produce the outcome most preferred by the median voter.

A) True
B) False

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Which of the following is not correct?


A) Economics is a study of the choices that people make and the resulting interactions they have with one another.
B) In areas it has already studied, economists have found perfect and unchanging answers.
C) Economists are trying to expand their understanding of human behavior and society.
D) The economics of asymmetric information, political economy, and behavioral economics are all topics at the frontier of microeconomics.

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

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Economists have found that asymmetric information is not very prevalent.

A) True
B) False

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A radio story reported a study on the makes and models of cars that were observed going through intersections in the Washington, D.C. area without stopping at the stop signs. According to the story, Volvos were heavily overrepresented; the fraction of cars running stop signs that were Volvos was much greater than the fraction of Volvos in the total population of cars in the D.C. area. This is initially surprising because Volvo has built a reputation as an especially safe car that appeals to sensible, safety-conscious drivers. How is this observation best explained?


A) Volvo drivers are not willing to take risks that they would take in another, less safe car. Driving a Volvo leads to a propensity to run stop signs.
B) Volvo drivers are not willing to take risks that they would take in another, less safe car. Driving a Volvo reduces the propensity to run stop signs.
C) Volvo drivers are willing to take risks that they would not take in another, less safe car. Driving a Volvo reduces the propensity to run stop signs.
D) Volvo drivers are willing to take risks that they would not take in another, less safe car. Driving a Volvo leads to a propensity to run stop signs.

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

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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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​Economists have found that some risky behaviors increase and preventative medicine use decreases when individuals in the U.S. turn 65 and qualify for Medicare (public health insurance) . This phenomenon is most consistent with which of the following concepts?


A) ​Moral hazard
B) ​Time inconsistency
C) ​Availability bias
D) ​Confirmation bias

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

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Which of the following is a characteristic of a corporation but not of a small family-owned business?


A) The corporation buys inputs in markets for the factors of production.
B) The corporation sells output in markets for goods and services.
C) The corporation is guided in its decisions by the objective of profit maximization.
D) The corporation faces a principal-agent problem created by the separation of ownership and control.

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

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Studies of human decision-making have detected systematic mistakes that people make. Which of the following have been detected?


A) people are overconfident
B) people give too much weight to a small number of vivid observations
C) people are reluctant to change their minds
D) All of the above are correct.

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

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Table 22-7 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 Table 22-7 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 Table 22-7. Which of the following statements is correct regarding the Condorcet paradox and the results of pairwise voting on how to improve the safety of the intersection? A) The paradox implies that pairwise voting never produces transitive preferences, and so the voting in the town fails to produce transitive preferences. B) The paradox implies that pairwise voting sometimes (but not always) fails to produce transitive preferences, but the voting in the town does produce transitive preferences. C) The paradox implies that pairwise voting sometimes (but not always) fails to produce transitive preferences, and the voting in the town fails to produce transitive preferences. D) The paradox implies that pairwise voting always produces transitive preferences, and so the voting in the town produces transitive preferences. -Refer to Table 22-7. Which of the following statements is correct regarding the Condorcet paradox and the results of pairwise voting on how to improve the safety of the intersection?


A) The paradox implies that pairwise voting never produces transitive preferences, and so the voting in the town fails to produce transitive preferences.
B) The paradox implies that pairwise voting sometimes (but not always) fails to produce transitive preferences, but the voting in the town does produce transitive preferences.
C) The paradox implies that pairwise voting sometimes (but not always) fails to produce transitive preferences, and the voting in the town fails to produce transitive preferences.
D) The paradox implies that pairwise voting always produces transitive preferences, and so the voting in the town produces transitive preferences.

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

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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) A) and B)
F) C) and D)

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A "satisficer" is a person whose decision making is the same as that predicted by mainstream economic models.

A) True
B) False

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Which of the following is not correct?


A) Pairwise voting never produces transitive preferences.
B) The order of pairwise voting can affect the result.
C) Majority voting by itself does not tell us what outcome a society really wants.
D) No voting system can satisfy all of the following properties: unanimity, transitivity, independence of irrelevant alternatives, and no dictators.

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

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Don is convinced that it would be best if the U.S. was on a gold standard. He enthusiastically reads any editorials or articles that confirm his view. He frequently dismisses editorials and articles that argue against the gold standard because he presumes they are flawed or written by "crackpots." Don's behavior most clearly illustrates which of the following systematic mistakes that people make?


A) people are overconfident
B) people give too much weight to a small number of vivid observations
C) people are reluctant to change their minds
D) All of the above are correct.

E) A) and D)
F) A) and C)

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Table 22-7 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 Table 22-7 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 Table 22-7. If the first vote pits a 2-way stop against a stoplight and the second vote pits a 4-way stop against the winner of the first vote, then the outcome is as follows: A) 2-way stop wins the first vote and 2-way stop wins the second vote, so the town installs a 2-way stop. B) 2-way stop wins the first vote and 4-way stop wins the second vote, so the town installs a 4-way stop. C) Stoplight wins the first vote and stoplight wins the second vote, so the town installs a stoplight. D) Stoplight wins the first vote and 4-way stop wins the second vote, so the town installs a 4-way stop. -Refer to Table 22-7. If the first vote pits a 2-way stop against a stoplight and the second vote pits a 4-way stop against the winner of the first vote, then the outcome is as follows:


A) 2-way stop wins the first vote and 2-way stop wins the second vote, so the town installs a 2-way stop.
B) 2-way stop wins the first vote and 4-way stop wins the second vote, so the town installs a 4-way stop.
C) Stoplight wins the first vote and stoplight wins the second vote, so the town installs a stoplight.
D) Stoplight wins the first vote and 4-way stop wins the second vote, so the town installs a 4-way stop.

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

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