Question 1

Table 22-8
 
-Refer to Table 22-8.The table shows the preferences of four types of voters over four possible outcomes: A,B,C,and D.In addition,the table shows the percentage of voters of each type.Suppose that,for some reason,D is eliminated as a possible option.Using a Borda count election,with 3 points for the best choice,2 points for the second best choice,and 1 point for the last choice,which outcome would win this election?

Accepted Answer

A)   A
B)   B
C)   C
D)   There would be a three-way tie.E) A) and C)
F) C) and D)

Question 2

Juanita is preparing to study for her economics final exam.She tells her friend that she will be happy if she just gets a B,even though she could likely earn an A if she studied harder.Juanita is what Herbert Simon would call a

Accepted Answer

A)   rational maximizer.
B)   satisficer.
C)   homo economicus.
D)   screener.E) B) and C)
F) A) and B)

Question 3

Employers may choose to pay their workers a wage that exceeds the equilibrium wage according to

Accepted Answer

A)   efficiency-wage theories.
B)   equilibrium wage theories.
C)   screening theories.
D)   signaling theories.E) All of the above
F) A) and C)

Question 4

Which of the following is not an example of an adverse selection problem?

Accepted Answer

A)   A homeowner purchases a refrigerator that the seller knows has a history of leaking.
B)   A highly productive worker quits her job after a salary cut knowing that she can make more at a different job.
C)   A major league baseball player performs poorly in his second season after signing a multi-million dollar contract.
D)   A contractor uses low quality materials for construction but charges for higher quality materials.E) None of the above
F) A) and D)

Question 5

In a moral hazard problem,the agent is unable to perfectly monitor the principal's behavior so the principal applies less effort than the agent considers desirable.

Accepted Answer

A) True 
 B)False

Question 6

Table 22-14
The Johnson family is planning a vacation and, though Mr. and Mrs. Johnson will be paying for the trip, they have decided to use a democratic voting process to choose their destination. The family members' preferences are reflected in the table below.
 
-Refer to Table 22-14.If Mr.Johnson wants to ensure that his 1st choice becomes the family's winning destination,he should propose

Accepted Answer

A)   using a vote by majority rule and first choosing between Opryland and the Grand Canyon, then choosing between the winner of the first vote and Sea World, and finally choosing between the winner of the second vote and Disneyland.
B)   using a vote by majority rule and first choosing between Disneyland and Sea World, then choosing between the winner of the first vote and the Grand Canyon and finally choosing between the winner of the second vote and the Opryland.
C)   using a vote by majority rule and first choosing between Sea World and the Grand Canyon, then choosing between the winner of the first vote and Disneyland, and finally choosing between the winner of the second vote and Opryland.
D)   using a Borda count.E) None of the above
F) A) and B)

Question 7

Screening occurs when

Accepted Answer

A)   an informed party acts to reveal his private information.
B)   an informed party acts to conceal his private information.
C)   an uninformed party acts to induce the informed party to reveal private information.
D)   one informed party acts to prevent another informed party from revealing private information.E) A) and B)
F) A) and C)

Question 8

Suppose that in a Borda count election,outcome X is preferred to outcome Y,and outcome Y is preferred to outcome Z,when outcomes X,Y,and Z are all available options.When Y is removed as an option,however,outcome Z is preferred to outcome X.This would violate Arrow's assumption that voting systems should satisfy

Accepted Answer

A)   unanimity.
B)   transitivity.
C)   the independence of irrelevant alternatives.
D)   no dictators.E) A) and B)
F) A) and D)

Question 9

Table 22-3
The citizens of Anytown will decide whether to build a new library, a new community center, or a new ice rink. Exactly one of the three choices will prevail, and the choice will be made by way of pairwise voting, with the majority determining the outcome on each vote. The preferences of the voters are summarized in the table below.
 
-Refer to Table 22-3.If the citizens of Anytown use a Borda count,rather than pairwise majority voting,to decide what to build,then they will build a new

Accepted Answer

A)   library.
B)   community center.
C)   ice rink.
D)   None of the above is correct; a Borda count fails to produce a winner in this instance.E) A) and D)
F) A) and B)

Question 10

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.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?

Accepted Answer

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)

Question 11

A street vendor sells a replica of a designer handbag to a young woman who believes the handbag is authentic.The street vendor is engaging in

Accepted Answer

A)   both moral hazard and adverse selection.
B)   neither moral hazard nor adverse selection.
C)   moral hazard, but not adverse selection.
D)   adverse selection, but not moral hazard.E) None of the above
F) A) and C)

Question 12

Table 22-12
The following table shows the number of voters preferring various amounts of spending on a new school.
 
-Refer to Table 22-12.Suppose the voters are asked to choose between $0.5 and $2.0.If all voters cast a vote for the spending amount closest to their own preference,which spending amount will win a majority of the votes?

Accepted Answer

A)   $0.5
B)   $2.0
C)   Neither. The vote will be a tie.
D)   Neither, since the median spending amount, $1.5, will always win in a vote.E) B) and C)
F) A) and B)

Question 13

On car insurance policies,Countrywide Insurance Company offers drivers an option: Policy 1 features a deductible of $1,000,and it requires a driver to pay an annual premium of $500.Policy 2 features a deductible of $250,and it requires a driver to pay an annual premium of $1,000.

Accepted Answer

A)   In offering these two policies, Countrywide is engaging in illegal price discrimination.
B)   In offering these two policies, Countrywide is screening drivers.
C)   Policy 1 is more of a burden for safe drivers than it is for risky drivers.
D)   In offering these two policies, Countrywide is signaling their quality to drivers.E) A) and C)
F) A) and B)

Question 14

Scenario 22-3
Three candidates, Frank, Brian, and Wanda, are running for office. There are three voters in the upcoming election: Henry, Diane, and Linda. Henry prefers Brian over Frank and Frank over Wanda. Diane prefers Wanda over Brian and Brian over Frank. Linda prefers Frank over Brian and Brian over Wanda.
-Refer to Scenario 22-3.Which of the following statements is correct regarding the Condorcet paradox and the results of pairwise voting by Henry,Diane,and Linda?

Accepted Answer

A)   The paradox implies that pairwise voting never produces transitive preferences, and so the voting by Henry, Diane, and Linda fails to produce transitive preferences.
B)   The paradox implies that pairwise voting sometimes (but not always)  produces transitive preferences, and the voting by Henry, Diane, and Linda does produce transitive preferences.
C)   The paradox implies that pairwise voting sometimes (but not always)  fails to produce transitive preferences, and the voting by Henry, Diane, and Linda fails to produce transitive preferences.
D)   The paradox does not apply to the case at hand, because Henry's preferences are not individually transitive.E) B) and C)
F) None of the above

Question 15

Which of the following relationships involves asymmetric information?

Accepted Answer

A)   An employee knows more than his employer knows about his work effort.
B)   A borrower knows more than the lender about his ability to repay the loan.
C)   The seller of a 30-year-old house knows more than the buyer about the condition of the house.
D)   All of the above are correct.E) A) and D)
F) A) and C)

Question 16

An insurance company that writes automobile policies tries to separate safe drivers from risky drivers by offering policies that feature different deductibles and different premiums.This practice is best described as an example of

Accepted Answer

A)   screening.
B)   behavioral economics.
C)   the Condorcet Paradox.
D)   signaling.E) None of the above
F) All of the above

Question 17

When the buyer knows less than the seller about the characteristics of the good being sold,there is

Accepted Answer

A)   a principal-agent problem.
B)   a moral hazard problem.
C)   an adverse selection problem.
D)   a signaling problem.E) C) and D)
F) None of the above

Question 18

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?

Accepted Answer

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

Question 19

Which of the following is not an example of asymmetric information?

Accepted Answer

A)   When someone is applying for a job, the employer checks references to determine the previous work habits of the applicant.
B)   When an employee purchases group life insurance without taking a physical exam, she knows more about her health than does the insurance company.
C)   When someone is considering buying a used car from a dealership, the dealer knows more about the true condition of the car than does the potential buyer.
D)   All of the above are examples of asymmetric information.E) A) and D)
F) B) and C)

Question 20

An example of signaling is a boyfriend giving an expensive,romantic gift to his girlfriend to convey his love for her.

Accepted Answer

A) True 
 B)False

Exam 22: Frontiers in Microeconomics.

Correct Answer
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Correct Answer
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An example of signaling is a boyfriend giving an expensive,romantic gift to his girlfriend to convey his love for her.

Correct Answer
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Screening occurs when

Correct Answer
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Juanita is preparing to study for her economics final exam.She tells her friend that she will be happy if she just gets a B,even though she could likely earn an A if she studied harder.Juanita is what Herbert Simon would call a

Correct Answer
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Correct Answer
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Which of the following is not an example of asymmetric information?

Correct Answer
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When the buyer knows less than the seller about the characteristics of the good being sold,there is

Correct Answer
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Correct Answer
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In a moral hazard problem,the agent is unable to perfectly monitor the principal's behavior so the principal applies less effort than the agent considers desirable.

Correct Answer
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Correct Answer
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Employers may choose to pay their workers a wage that exceeds the equilibrium wage according to

Correct Answer
verified

An insurance company that writes automobile policies tries to separate safe drivers from risky drivers by offering policies that feature different deductibles and different premiums.This practice is best described as an example of

Correct Answer
verified

On car insurance policies,Countrywide Insurance Company offers drivers an option: Policy 1 features a deductible of $1,000,and it requires a driver to pay an annual premium of $500.Policy 2 features a deductible of $250,and it requires a driver to pay an annual premium of $1,000.

Correct Answer
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A street vendor sells a replica of a designer handbag to a young woman who believes the handbag is authentic.The street vendor is engaging in

Correct Answer
verified

Correct Answer
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Which of the following relationships involves asymmetric information?

Correct Answer
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Which of the following is not an example of an adverse selection problem?

Correct Answer
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Correct Answer
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Correct Answer
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Exam 22: Frontiers in Microeconomics.

Correct AnswerverifiedShow Answer

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An example of signaling is a boyfriend giving an expensive,romantic gift to his girlfriend to convey his love for her.

Correct AnswerverifiedShow Answer

Screening occurs when

Correct AnswerverifiedShow Answer

Juanita is preparing to study for her economics final exam.She tells her friend that she will be happy if she just gets a B,even though she could likely earn an A if she studied harder.Juanita is what Herbert Simon would call a

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is not an example of asymmetric information?

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When the buyer knows less than the seller about the characteristics of the good being sold,there is

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Correct AnswerverifiedShow Answer

In a moral hazard problem,the agent is unable to perfectly monitor the principal's behavior so the principal applies less effort than the agent considers desirable.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Employers may choose to pay their workers a wage that exceeds the equilibrium wage according to

Correct AnswerverifiedShow Answer

An insurance company that writes automobile policies tries to separate safe drivers from risky drivers by offering policies that feature different deductibles and different premiums.This practice is best described as an example of

Correct AnswerverifiedShow Answer

On car insurance policies,Countrywide Insurance Company offers drivers an option: Policy 1 features a deductible of $1,000,and it requires a driver to pay an annual premium of $500.Policy 2 features a deductible of $250,and it requires a driver to pay an annual premium of $1,000.

Correct AnswerverifiedShow Answer

A street vendor sells a replica of a designer handbag to a young woman who believes the handbag is authentic.The street vendor is engaging in

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Correct AnswerverifiedShow Answer

Which of the following relationships involves asymmetric information?

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Which of the following is not an example of an adverse selection problem?

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Correct AnswerverifiedShow Answer

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