Question 1

The classic example of adverse selection is the

Accepted Answer

A)  market for used cars.
B)  market for new houses.
C)  relationship between husband and wife.
D)  relationship between a worker and his employer.E) None of the above
F) B) and C)

Question 2

Insurance companies charge annual premiums to collect revenue,which they then use to pay customers who file claims for damages they incur.Because of the moral hazard problem insurance companies separate customers into groups.Group 1: customers who file few claims & Group 2: customers that file a lot of claims.After creating these groups,what happens to the average annual premium within a group?

Accepted Answer

A)  Group 1: average annual premium increasesGroup 2: average annual premium increases
B)  Group 1: average annual premium decreasesGroup 2: average annual premium increases
C)  Group 1: average annual premium increasesGroup 2: average annual premium decreases
D)  Group 1: average annual premium decreasesGroup 2: average annual premium decreasesE) All of the above
F) C) and D)

Question 3

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

Accepted Answer

A)  the hidden characteristics problem.
B)  the lemons problem.
C)  moral hazard.
D)  adverse selection.E) None of the above
F) A) and D)

Question 4

The principal-agent problem is more serious in large firms than in small firms because

Accepted Answer

A)  monitoring employee activity in large firms is generally more difficult.
B)  employees in large firms have less information.
C)  profits increase with the size of the firm.
D)  customers expect better treatment from small firms and they usually get it.E) None of the above
F) A) and B)

Question 5

The Arrow impossibility theorem shows that

Accepted Answer

A)  democracy should be abandoned as a form of government.
B)  it is impossible to improve upon democratic voting methods as a mechanism for social choice.
C)  all voting systems are flawed as a mechanism for social choice.
D)  the median voter's preferences will always win in a two-way vote.E) B) and C)
F) B) and D)

Question 6

Table 22-5
 
-Refer to Table 22-5.The table shows the preferences of four types of voters over four possible outcomes: W,X,Y,and Z.In addition,the table shows the percentage of voters of each type.Based on this information,which of the following statements is false?

Accepted Answer

A)  Outcome W is preferred to outcome X overall.
B)  Outcome X is preferred to outcome Y overall.
C)  Outcome Y is preferred to outcome W overall.
D)  Outcome W is preferred to outcome Z overall.E) B) and C)
F) None of the above

Question 7

Which of the following would violate transitivity?

Accepted Answer

A)  John likes A more than B, C more than B, and C more than a.
B)  Steve likes C more than B, A more than B, B more than D, and C more than D.
C)  Sarah likes C more than A, B more than D, A more than B, and D more than C.
D)  Mitch likes C more than B, C more than D, and B more than D.E) B) and D)
F) None of the above

Question 8

Which of the following is an example of a principal-agent relationship?

Accepted Answer

A)  Car dealer and potential customer
B)  Business consultant and client
C)  Retail store manager and potential customer
D)  Both A and C are correct.E) B) and D)
F) All of the above

Question 9

Students of microeconomic principles often say they are going to study "tonight," because the only way to pass the exam is to study some every night.When "tonight" comes,some students choose to do something else.Come exam-day,these students do not do well on their exam.This observation is an example of how people

Accepted Answer

A)  are inconsistent over time.
B)  are consistent over time.
C)  are mainly interested in fairness.
D)  are rational.E) C) and D)
F) All of the above

Question 10

The tendency of many people to procrastinate supports the view that people are consistent over time.

Accepted Answer

A) True 
 B)False

Question 11

Evidence from experiments in which real people play the ultimatum game supports the idea that people

Accepted Answer

A)  are rational wealth-maximizers.
B)  tend to be driven by fairness, without regard for their own self-interest.
C)  are driven by both fairness and self-interest.
D)  have trouble calculating their own levels of wealth.E) B) and D)
F) B) and C)

Question 12

When new professors are hired,their job performance is monitored closely.If they meet their institution's standards,they will eventually receive tenure.After receiving tenure,professors' job performance is less closely monitored,and they become difficult to fire.Tenure thus creates

Accepted Answer

A)  adverse selection.
B)  a Condorcet paradox.
C)  a screening problem.
D)  moral hazard.E) A) and B)
F) None of the above

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

The Condorcet paradox shows that

Accepted Answer

A)  allocations of resources based on majority rule are always inefficient.
B)  problems in counting votes can negate legitimate democratic outcomes.
C)  the order on which things are voted can affect the result.
D)  transitive preferences are inconsistent with rationality.E) A) and C)
F) B) and C)

Question 15

"Signaling" refers to actions by an informed party for the sole purpose of

Accepted Answer

A)  telling another party that the signaler has information to reveal, without actually revealing that information.
B)  conveying false information.
C)  confusing another party.
D)  credibly revealing private information.E) C) and D)
F) All of the above

Question 16

Scenario 22-5
Three candidates, Fred, Barb, and William, are running for office. There are three voters in the upcoming election: Heather, Don, and Luanne. Heather prefers Barb over Fred and Fred over William. Don prefers William over Barb and Barb over Fred. Luanne prefers Fred over Barb and Barb over William.
-Refer to Scenario 22-5.If the voters were given a choice of Fred versus Barb first,then the winner was in a second election versus William,who would win?

Accepted Answer

A)  Fred
B)  Barb
C)  William
D)  There is not enough information to answer this question.E) A) and C)
F) C) and D)

Question 17

Most economic models incorporate the assumption of rational behavior on the part of economic actors.

Accepted Answer

A) True 
 B)False

Question 18

Table 22-6
 
-Refer to Table 22-6.The table shows the preferences of 100 voters over three possible outcomes: X,Y,and Z.If a Borda count election were held among these voters,giving three points to each voter's first choice,two points to the second choice,and one point to the last choice,which outcome would win the election?

Accepted Answer

A)  Outcome X
B)  Outcome Y
C)  Outcome Z
D)  Either outcome X or outcome Z since these have the same total score.E) A) and B)
F) A) and C)

Question 19

Table 22-5
 
-Refer to Table 22-5.The table shows the preferences of four types of voters over four possible outcomes: W,X,Y,and Z.In addition,the table shows the percentage of voters of each type.Suppose a Borda count election is held in which each voter ranks the four outcomes,giving 1 point to last place,2 points to second to last,3 points to the second best,and 4 points to the best.In this case,which outcome would win?

Accepted Answer

A)  W
B)  X
C)  Y
D)  ZE) None of the above
F) A) and B)

Question 20

When economists assume that people are rational,they assume that

Accepted Answer

A)  consumers maximize profits.
B)  firms maximize revenues.
C)  consumers maximize utility.
D)  firms maximize output.E) A) and B)
F) A) and D)

Exam 22: Frontiers of Microeconomics

Correct Answer
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Correct Answer
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Which of the following would violate transitivity?

Correct Answer
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The classic example of adverse selection is the

Correct Answer
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The problem that arises when one person performs a task on behalf of another person is called

Correct Answer
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The tendency of many people to procrastinate supports the view that people are consistent over time.

Correct Answer
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When new professors are hired,their job performance is monitored closely.If they meet their institution's standards,they will eventually receive tenure.After receiving tenure,professors' job performance is less closely monitored,and they become difficult to fire.Tenure thus creates

Correct Answer
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Evidence from experiments in which real people play the ultimatum game supports the idea that people

Correct Answer
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The Arrow impossibility theorem shows that

Correct Answer
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Correct Answer
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Most economic models incorporate the assumption of rational behavior on the part of economic actors.

Correct Answer
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When economists assume that people are rational,they assume that

Correct Answer
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The Condorcet paradox shows that

Correct Answer
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The principal-agent problem is more serious in large firms than in small firms because

Correct Answer
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Correct Answer
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"Signaling" refers to actions by an informed party for the sole purpose of

Correct Answer
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Correct Answer
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Table 22-5 -Refer to Table 22-5.The table shows the preferences of four types of voters over four possible outcomes: W,X,Y,and Z.In addition,the table shows the percentage of voters of each type.Based on this information,which of the following statements is false?

Correct Answer
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Which of the following is an example of a principal-agent relationship?

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

Correct Answer
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Exam 22: Frontiers of Microeconomics

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following would violate transitivity?

Correct AnswerverifiedShow Answer

The classic example of adverse selection is the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The tendency of many people to procrastinate supports the view that people are consistent over time.

Correct AnswerverifiedShow Answer

When new professors are hired,their job performance is monitored closely.If they meet their institution's standards,they will eventually receive tenure.After receiving tenure,professors' job performance is less closely monitored,and they become difficult to fire.Tenure thus creates

Correct AnswerverifiedShow Answer

Evidence from experiments in which real people play the ultimatum game supports the idea that people

Correct AnswerverifiedShow Answer

The Arrow impossibility theorem shows that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Most economic models incorporate the assumption of rational behavior on the part of economic actors.

Correct AnswerverifiedShow Answer

When economists assume that people are rational,they assume that

Correct AnswerverifiedShow Answer

The Condorcet paradox shows that

Correct AnswerverifiedShow Answer

The principal-agent problem is more serious in large firms than in small firms because

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

"Signaling" refers to actions by an informed party for the sole purpose of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Table 22-5 -Refer to Table 22-5.The table shows the preferences of four types of voters over four possible outcomes: W,X,Y,and Z.In addition,the table shows the percentage of voters of each type.Based on this information,which of the following statements is false?

Correct AnswerverifiedShow Answer

Which of the following is an example of a principal-agent relationship?

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

Correct AnswerverifiedShow Answer

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