Question 1

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

Accepted Answer

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. 
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.

Question 2

Most economic models

Accepted Answer

A) incorporate the assumption of rational behavior on the part of economic actors. 
B) incorporate the notion that people are usually reluctant to change their minds. 
C) are meant to precisely duplicate reality. 
D) assume that people often make sub-optimal choices. 
A) incorporate the assumption of rational behavior on the part of economic actors. 
B) incorporate the notion that people are usually reluctant to change their minds. 
C) are meant to precisely duplicate reality. 
D) assume that people often make sub-optimal choices.

Question 3

The field of behavioral economics applies the methods of economics to study how government works.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is not an example of a moral hazard problem?

Accepted Answer

A) A manager stays late one evening so that her employee can leave early to attend his child's music recital. 
B) A small child takes an extra cookie from the cookie jar when he thinks his mom isn't watching him closely. 
C) An employee plays solitaire on her computer at 4:30 p.m. on a Friday when her boss has left for the day. 
D) A customer whose new eyeglasses come with a "60-day insurance policy in case of breakage" leaves her glasses out where her new puppy can chew on them. 
A) A manager stays late one evening so that her employee can leave early to attend his child's music recital. 
B) A small child takes an extra cookie from the cookie jar when he thinks his mom isn't watching him closely. 
C) An employee plays solitaire on her computer at 4:30 p.m. on a Friday when her boss has left for the day. 
D) A customer whose new eyeglasses come with a "60-day insurance policy in case of breakage" leaves her glasses out where her new puppy can chew on them.

Question 5

Evidence from studies of workers' choices on whether to participate in 401(k) plans suggests that the workers' behavior appears to exhibit

Accepted Answer

A) indifference. 
B) ignorance. 
C) inertia. 
D) indecision. 
A) indifference. 
B) ignorance. 
C) inertia. 
D) indecision.

Question 6

Conventional economic theory suggests that in the ultimatum game, the player proposing a split of $50 will propose that she get $49 and that the other player get $1. By the same reasoning, if the amount to be split is $1000, the player proposing the split will propose that she gets

Accepted Answer

A) $500 and that the other player gets $500. 
B) $998 and that the other player gets $2. 
C) $999 and that the other player gets $1. 
D) $1000 and that the other player gets nothing. 
A) $500 and that the other player gets $500. 
B) $998 and that the other player gets $2. 
C) $999 and that the other player gets $1. 
D) $1000 and that the other player gets nothing.

Question 7

Studies of human decision making have found that people are reluctant to change their minds.

Accepted Answer

A) True 
 B)False

Question 8

Domingo is a contestant on a trivia quiz show. For every state capital he can correctly identify, he will win $1,000. However, before identifying any capitals, he must decide how many he thinks he can correctly identify. If he cannot identify as many as he has wagered, Domingo will not win any money. Suppose Domingo says that he can correctly identify 42 state capitals for a potential payoff of $42,000. According to studies of human decision-making, what is most likely to happen?

Accepted Answer

A) Domingo will be able to identify 42 state capitals and he will win $42,000. 
B) Domingo will be able to identify fewer than 42 state capitals and will not win any money. 
C) Domingo will not be able to identify any state capitals and will not win any money. 
D) Domingo will choose to save all of the money he wins on the quiz show for his retirement. 
A) Domingo will be able to identify 42 state capitals and he will win $42,000. 
B) Domingo will be able to identify fewer than 42 state capitals and will not win any money. 
C) Domingo will not be able to identify any state capitals and will not win any money. 
D) Domingo will choose to save all of the money he wins on the quiz show for his retirement.

Question 9

People with hidden health problems are more likely to buy health insurance than other people. As a result, people in average health may observe the high prices of insurance and decide not to buy it. This is an example of

Accepted Answer

The answer of People with hidden health problems are more...

Question 10

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 11

The temptation of imperfectly-monitored workers to shirk their responsibilities is

Accepted Answer

A) an example of the moral hazard problem. 
B) an example of the adverse selection problem. 
C) an example of screening. 
D) an example of signaling. 
A) an example of the moral hazard problem. 
B) an example of the adverse selection problem. 
C) an example of screening. 
D) an example of signaling.

Question 12

Sam needs to have his car serviced. There is an auto repair shop located nearby that does a lot of business and has an online rating of 4 out of 5 stars. Sam takes his car to be serviced and thinks the service person is grumpy and that his car is still not running as well as it could be. Sam then makes a point of telling his friends not to use the repair shop. Sam's actions illustrate which of the following systematic mistakes that people make when making decisions?

Accepted Answer

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. 
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.

Question 13

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 14

Rather than always choosing the best course of action, humans make decisions that are merely good enough. In other words, they are

Accepted Answer

The answer of Rather than always choosing the best course...

Question 15

Which of the following students exhibits satisficing behavior?

Accepted Answer

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. 
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.

Question 16

​​When a principal attempts to get an agent to reveal his or her private information, which of the following is occurring?

Accepted Answer

A) ​Screening 
B) ​Signalling 
C) ​Moral hazard 
D) ​Adverse selection 
A) ​Screening 
B) ​Signalling 
C) ​Moral hazard 
D) ​Adverse selection

Question 17

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 a principal?

Accepted Answer

A) Shana 
B) Katie 
C) Belinda 
D) Magda 
A) Shana 
B) Katie 
C) Belinda 
D) Magda

Question 18

In corporations, which of the following are agents but not principals?

Accepted Answer

A) shareholders 
B) the board of directors 
C) managers 
D) workers 
A) shareholders 
B) the board of directors 
C) managers 
D) workers

Question 19

Which of the following is not an example of a systematic mistake that people make?

Accepted Answer

A) When asked to predict how many movie stars he can list, Ed says 200 but when put to the test he can only name 130. 
B) Susan watched a home improvement show in which a contractor installed a faulty deck which collapsed within 2 years of installation. She is now concerned about the safety of her own deck. 
C) Kate's manager asks her to work additional hours for which she will be paid her usual hourly wage. Kate weighs the value of her leisure time against the additional wages before responding to her manager. 
D) Bill has purchased Skillman tools for years and has recently noticed a decline in quality and durability of Skillman tools. Still, when he needs a new drill, he purchases a Skillman brand drill. 
A) When asked to predict how many movie stars he can list, Ed says 200 but when put to the test he can only name 130. 
B) Susan watched a home improvement show in which a contractor installed a faulty deck which collapsed within 2 years of installation. She is now concerned about the safety of her own deck. 
C) Kate's manager asks her to work additional hours for which she will be paid her usual hourly wage. Kate weighs the value of her leisure time against the additional wages before responding to her manager. 
D) Bill has purchased Skillman tools for years and has recently noticed a decline in quality and durability of Skillman tools. Still, when he needs a new drill, he purchases a Skillman brand drill.

Question 20

The median voter theorem states that majority-rule political systems will produce policies that are most preferable for the median voter.​

Accepted Answer

A) True 
 B)False

Exam 22: Frontiers in Microeconomics

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

Most economic models

The field of behavioral economics applies the methods of economics to study how government works.

Which of the following is not an example of a moral hazard problem?

Evidence from studies of workers' choices on whether to participate in 401(k) plans suggests that the workers' behavior appears to exhibit

Conventional economic theory suggests that in the ultimatum game, the player proposing a split of $50 will propose that she get $49 and that the other player get $1. By the same reasoning, if the amount to be split is $1000, the player proposing the split will propose that she gets

Studies of human decision making have found that people are reluctant to change their minds.

People with hidden health problems are more likely to buy health insurance than other people. As a result, people in average health may observe the high prices of insurance and decide not to buy it. This is an example of

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

The temptation of imperfectly-monitored workers to shirk their responsibilities is

Which of the following relationships involves asymmetric information?

Rather than always choosing the best course of action, humans make decisions that are merely good enough. In other words, they are

Which of the following students exhibits satisficing behavior?

​​When a principal attempts to get an agent to reveal his or her private information, which of the following is occurring?

In corporations, which of the following are agents but not principals?

Which of the following is not an example of a systematic mistake that people make?

The median voter theorem states that majority-rule political systems will produce policies that are most preferable for the median voter.​

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

Applications: 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

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

When a principal attempts to get an agent to reveal his or her private information, which of the following is occurring?

The median voter theorem states that majority-rule political systems will produce policies that are most preferable for the median voter.