Exam 22: Frontiers in Microeconomics

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?

Economic policy that appears to be ideal in an economics textbook may not be the final policy that is approved by elected politicians because

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

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

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?

Studies of human decision-making have found that people do not give enough weight to a small number of vivid observations.

The Condorcet paradox implies that the order in which items are voted on under majority rule is unimportant.

Table 22-3 Three family members -- Seamus, Maeve, and Siobhan -- are deciding what type of movie to attend. The three choices are an action adventure, comedy, or horror. The first, second, and third choices for each person are as indicated in the table below. -Refer to Table 22-3. If the voting method is a Borda count, which alternative will be chosen?

A survey of 1,500 frequent restaurant patrons revealed that, Chang Cheng, a local Chinese restaurant, offers high-quality food at low prices. Based on one dining experience, a restaurant critic gave Chang Cheng a poor review, saying the food was not very good. As a result, you decide not to dine at Chang Cheng. This decision is an example of which of the following systematic mistakes that people make when making decisions?

One way that employers respond to the moral-hazard problem is by monitoring their employees.

Table 22-1 Three friends -- Linda, Stephanie, and Jamie -- are deciding where to go together for vacation. They all agree that they should go to one of three places: France, Greece, or Italy. They also agree that they will have two pairwise votes to determine where to go on vacation, with the majority determining the outcome on each vote. The first, second, and third choices for each person are as indicated in the table below. -Refer to Table 22-1. If the first vote pits Greece against Italy and the second vote pits France against the winner of the first vote, then the outcome is as follows:

Table 22-8 The citizens of Mayville are having a severe budget shortage and are faced with eliminating athletics from the town high school. The town administrator has determined that the town can afford to maintain one sport. 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 22-8. The town administrator is a huge basketball fan. If he wants to ensure that basketball is the winning sport, how should he set up the voting?

Table 22-14 Amy, Beth, and Connie are on a hiring committee. They have interviewed 3 candidates identified by their last names and are going to vote on which one is hired. ' -Refer to Table 22-14. Which of the following is correct for this election? There is

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

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, and D. 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?

Table 22-10 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 22-10. If a Borda count is used, which option will win?

Table 22-18 The following table shows the preferences of four types of voters over four possible alternatives as well as the percentage of the electorate with the given preferences. -Refer to Table 22-18. If the vote is conducted using a Borda count where each person's first choice receives 4 points, each person's second choice 3 points, each person's third choice 2 points, and each person's fourth choice 1 point, which alternative would win?

Narrative 22-1 Katie owns a boutique that sells high-end women's clothing and accessories. Shana works part-time at the boutique and frequently is the only employee in this small store. Katie pays Shana a wage that is higher than the market wage for this type of job. When the store is not full of customers, Shana diligently works on displays and cleans to keep the store looking its best. Magda is a customer in the store who asks Shana's opinion on the quality of some jeans she is considering purchasing. Even though she's had several other customers return them due to flaws, Shana tells Magda the quality is great. Belinda is another customer who is returning a necklace without revealing that she lost a gem from it while wearing it. -Refer to Narrative 22-1. Which of the ladies is an agent?

Scott's Painting Company paints houses. Since Scott's business does not have the name recognition of some of the bigger painting companies, Scott advertises a "Five-Year Money Back Guarantee" to indicate to buyers that his service is of high quality. This guarantee is an example of

Evidence from experiments in which real people play the ultimatum game supports the idea that people care about fairness as well as about maximization of their personal wealth.