Question 1

Arrow's impossibility theorem is "disturbing" in the sense that it proves that

Accepted Answer

A) no voting system is perfect. 
B) only a dictator can produce a desirable social outcome. 
C) the preferences of the wealthy should be given more weight than the preferences of the poor. 
D) the centuries-old Condorcet paradox was not a paradox after all. 
A) no voting system is perfect. 
B) only a dictator can produce a desirable social outcome. 
C) the preferences of the wealthy should be given more weight than the preferences of the poor. 
D) the centuries-old Condorcet paradox was not a paradox after all.

Question 2

The Condorcet paradox shows that there is no scheme for aggregating individual preferences into a valid set of social preferences.

Accepted Answer

A) True 
 B)False

Question 3

The median voter's preferred outcome is the same as the

Accepted Answer

A) average preferred outcome. 
B) outcome preferred by the greatest number of voters. 
C) outcome produced by majority rule. 
D) outcome preferred by Arrow's "perfect" voter. 
A) average preferred outcome. 
B) outcome preferred by the greatest number of voters. 
C) outcome produced by majority rule. 
D) outcome preferred by Arrow's "perfect" voter.

Question 4

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

Accepted Answer

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. 
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.

Question 5

If individuals behave irrationally in some circumstances, why do economists typically assume that they behave rationally?​

Accepted Answer

A) ​The assumption of rationality allows economists to make powerful statements that apply the majority of the time. 
B) ​The assumption of rationality was used before psychologists discovered ways in which individuals behave irrationally. 
C) ​The assumption of rationality is used because economists do not understand principles of psychology. 
D) ​The assumption of rationality has yet to be refuted with scientific evidence. 
A) ​The assumption of rationality allows economists to make powerful statements that apply the majority of the time. 
B) ​The assumption of rationality was used before psychologists discovered ways in which individuals behave irrationally. 
C) ​The assumption of rationality is used because economists do not understand principles of psychology. 
D) ​The assumption of rationality has yet to be refuted with scientific evidence.

Question 6

An example of asymmetric information is when a seller of a house knows more than the buyer about the house's condition.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is an example of informational asymmetry?

Accepted Answer

A) A seller of a house knows more about its true condition than does a potential buyer. 
B) A salesperson knows more about her efforts than does her manager. 
C) A child knows more about how much time he spent playing video games while he was alone in his bedroom than do his parents. 
D) All of the above are correct. 
A) A seller of a house knows more about its true condition than does a potential buyer. 
B) A salesperson knows more about her efforts than does her manager. 
C) A child knows more about how much time he spent playing video games while he was alone in his bedroom than do his parents. 
D) All of the above are correct.

Question 8

An implication of the median voter theorem is that, in a race between Republicans and Democrats,

Accepted Answer

A) if Republicans want to win, they will take a "middle-of-the-road" stance on many issues. 
B) if Democrats want to win, they will take an extreme stance on many issues. 
C) Republicans and Democrats go to extremes to differentiate themselves from one another. 
D) Republicans and Democrats work hard to identify the fringe voters. 
A) if Republicans want to win, they will take a "middle-of-the-road" stance on many issues. 
B) if Democrats want to win, they will take an extreme stance on many issues. 
C) Republicans and Democrats go to extremes to differentiate themselves from one another. 
D) Republicans and Democrats work hard to identify the fringe voters.

Question 9

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. 
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.

Question 10

Table 22-9  
-Refer to Table 22-9. The table shows the preferences of four types of voters over four possible outcomes: A, B, C, D. 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 D is preferred to outcome C overall. 
B) Outcome C is preferred to outcome B overall. 
C) Outcome B is preferred to outcome D overall. 
D) Outcome D is preferred to outcome A overall. 
A) Outcome D is preferred to outcome C overall. 
B) Outcome C is preferred to outcome B overall. 
C) Outcome B is preferred to outcome D overall. 
D) Outcome D is preferred to outcome A overall.

Question 11

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 12

Which of the following relationships involves asymmetric information?

Accepted Answer

A) Patients can look up information regarding certain prescription drugs giving them the same information as their doctors. 
B) Consumer Reports allows customers of DVD players to know as much about the quality of various players as the store salesperson. 
C) Car Fax allows car buyers to obtain used-vehicle histories providing them with the same information as the dealership salesperson. 
D) The batter in a baseball game must guess whether the pitcher is going to throw a fastball, curveball, or change-up. 
A) Patients can look up information regarding certain prescription drugs giving them the same information as their doctors. 
B) Consumer Reports allows customers of DVD players to know as much about the quality of various players as the store salesperson. 
C) Car Fax allows car buyers to obtain used-vehicle histories providing them with the same information as the dealership salesperson. 
D) The batter in a baseball game must guess whether the pitcher is going to throw a fastball, curveball, or change-up.

Question 13

A person's tendency to smoke a cigarette after promising himself that he will quit is an example of the behavioral economics insight that people are inconsistent over time

Accepted Answer

A) True 
 B)False

Question 14

Economist Kenneth Arrow wrote a famous book in 1951 in which he took up the question,

Accepted Answer

A) Is there a perfect voting system? 
B) Are preferences transitive? 
C) Is a dictatorship a good form of government? 
D) Does Democracy work? 
A) Is there a perfect voting system? 
B) Are preferences transitive? 
C) Is a dictatorship a good form of government? 
D) Does Democracy work?

Question 15

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. If the vote were conducted according to a modified Borda count system where each person's first choice receives 10 points, second choice 5 points, third choice 3 points and fourth choice 1 point, the result would be that

Accepted Answer

A) A would win. 
B) B would win. 
C) C would win. 
D) D would win. 
A) A would win. 
B) B would win. 
C) C would win. 
D) D would win.

Question 16

Table 22-23
The town of Franklin is facing a severe budget shortage. The town administrator has proposed four options to balance the budget: increase property taxes (taxes), cut the school arts budget (arts), turn off half of the streetlights in the town (streetlights), reduce police patrols (police). Exactly one of the four 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 22-23. If the town administrator asks the people to first choose between cutting the arts program and turning off half of the streetlights, and then choose between the winner of the first election and reducing police patrols, and then choose between the winner of the second election and increasing taxes, which option will win each vote?

Accepted Answer

streetligh

Question 17

When a jeweler sells a low quality diamond to a young man who believes the diamond is the highest quality, she 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. 
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.

Question 18

Which of the following sets of preferences can not satisfy the property of transitivity?

Accepted Answer

A) Plan A is preferred to plan D. Plan D is preferred to plan B. Plan C is preferred to plan B. 
B) Plan A is preferred to plan B. Plan B is preferred to plan C. Plan A is preferred to plan C. 
C) Plan C is preferred to plan A. Plan B is preferred to plan A. Plan C is preferred to plan B. 
D) Plan D is preferred to plan C. Plan C is preferred to plan B. Plan B is preferred to plan D. 
A) Plan A is preferred to plan D. Plan D is preferred to plan B. Plan C is preferred to plan B. 
B) Plan A is preferred to plan B. Plan B is preferred to plan C. Plan A is preferred to plan C. 
C) Plan C is preferred to plan A. Plan B is preferred to plan A. Plan C is preferred to plan B. 
D) Plan D is preferred to plan C. Plan C is preferred to plan B. Plan B is preferred to plan D.

Question 19

The majority of Americans, when asked how many states they could name, think they could name all fifty. However, when they are asked to do so, very few are able to come up with all fifty. This is an example of which systematic mistake that people make?

Accepted Answer

People are

Question 20

Table 22-16
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 22-16. If the family uses a Borda count to make their decision, what is their vacation destination?

Accepted Answer

A) Grand Canyon 
B) Sea World 
C) Opryland 
D) Disneyland 
A) Grand Canyon 
B) Sea World 
C) Opryland 
D) Disneyland

Arrow's impossibility theorem is "disturbing" in the sense that it proves that

The Condorcet paradox shows that there is no scheme for aggregating individual preferences into a valid set of social preferences.

The median voter's preferred outcome is the same as the

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

If individuals behave irrationally in some circumstances, why do economists typically assume that they behave rationally?

An example of asymmetric information is when a seller of a house knows more than the buyer about the house's condition.

Which of the following is an example of informational asymmetry?

An implication of the median voter theorem is that, in a race between Republicans and Democrats,

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.

Table 22-9 -Refer to Table 22-9. The table shows the preferences of four types of voters over four possible outcomes: A, B, C, D. In addition, the table shows the percentage of voters of each type. Based on this information, which of the following statements is false?

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

Which of the following relationships involves asymmetric information?

A person's tendency to smoke a cigarette after promising himself that he will quit is an example of the behavioral economics insight that people are inconsistent over time

Economist Kenneth Arrow wrote a famous book in 1951 in which he took up the question,

When a jeweler sells a low quality diamond to a young man who believes the diamond is the highest quality, she is engaging in

Which of the following sets of preferences can not satisfy the property of transitivity?

The majority of Americans, when asked how many states they could name, think they could name all fifty. However, when they are asked to do so, very few are able to come up with all fifty. This is an example of which systematic mistake that people make?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Filters

Exam 22: Frontiers in Microeconomics

Arrow's impossibility theorem is "disturbing" in the sense that it proves that

The Condorcet paradox shows that there is no scheme for aggregating individual preferences into a valid set of social preferences.

The median voter's preferred outcome is the same as the

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

If individuals behave irrationally in some circumstances, why do economists typically assume that they behave rationally?​

An example of asymmetric information is when a seller of a house knows more than the buyer about the house's condition.

Which of the following is an example of informational asymmetry?

An implication of the median voter theorem is that, in a race between Republicans and Democrats,

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.

Table 22-9 -Refer to Table 22-9. The table shows the preferences of four types of voters over four possible outcomes: A, B, C, D. In addition, the table shows the percentage of voters of each type. Based on this information, which of the following statements is false?

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

Which of the following relationships involves asymmetric information?

A person's tendency to smoke a cigarette after promising himself that he will quit is an example of the behavioral economics insight that people are inconsistent over time

Economist Kenneth Arrow wrote a famous book in 1951 in which he took up the question,

When a jeweler sells a low quality diamond to a young man who believes the diamond is the highest quality, she is engaging in

Which of the following sets of preferences can not satisfy the property of transitivity?

The majority of Americans, when asked how many states they could name, think they could name all fifty. However, when they are asked to do so, very few are able to come up with all fifty. This is an example of which systematic mistake that people make?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Filters

If individuals behave irrationally in some circumstances, why do economists typically assume that they behave rationally?