Question 1

The Condorcet voting paradox applies to situations in which voters

Accepted Answer

A) decide between exactly two possible outcomes. 
B) decide among more than two possible outcomes. 
C) as a group have transitive preferences. 
D) choose the inferior candidate even though the majority preferred the better candidate. 
A) decide between exactly two possible outcomes. 
B) decide among more than two possible outcomes. 
C) as a group have transitive preferences. 
D) choose the inferior candidate even though the majority preferred the better candidate.

Question 2

Peter was recently hired as a salesman for a national consulting firm. His job involves spending a significant portion of his time out of the office visiting prospects and attending conferences. His firm is paying him a wage that is higher than the equilibrium wage, but he receives much of his income in quarterly bonuses based on how much he sells.

Accepted Answer

A) The consulting firm is trying to prevent adverse selection with its compensation strategy. 
B) Peter has an incentive to go golfing with his buddies rather than conducting sales meetings. 
C) The consulting firm is responding to the moral hazard problem with its compensation strategy. 
D) Peter should quit this job and take a job where he gets paid an equilibrium wage more frequently. 
A) The consulting firm is trying to prevent adverse selection with its compensation strategy. 
B) Peter has an incentive to go golfing with his buddies rather than conducting sales meetings. 
C) The consulting firm is responding to the moral hazard problem with its compensation strategy. 
D) Peter should quit this job and take a job where he gets paid an equilibrium wage more frequently.

Question 3

Studies show that during the March Madness college basketball tournament, the productivity of the average company in the US falls considerably. This is an example of

Accepted Answer

A) the Condorcet Paradox. 
B) signaling. 
C) moral hazard. 
D) screening. 
A) the Condorcet Paradox. 
B) signaling. 
C) moral hazard. 
D) screening.

Question 4

Which of the following offers an explanation as to why the principal-agent problem exists for a firm?

Accepted Answer

A) The firm cares less about profit and more about cost when there are many competitors in the market. 
B) The firm offers an employee-incentive program in which employees share in the firm's profits. 
C) The firm operates in a market with many competitors forcing the firm to pay its employees more to keep them from switching to another firm. 
D) The firm operates to maximize profit while the employees attempt to work as little as possible to earn their paychecks. 
A) The firm cares less about profit and more about cost when there are many competitors in the market. 
B) The firm offers an employee-incentive program in which employees share in the firm's profits. 
C) The firm operates in a market with many competitors forcing the firm to pay its employees more to keep them from switching to another firm. 
D) The firm operates to maximize profit while the employees attempt to work as little as possible to earn their paychecks.

Question 5

Steve borrowed some money from Summit Bank, telling the loan officer that he intended to use the money to remodel his restaurant. After getting the loan, Steve and his girlfriend immediately took the money and went gambling in Vegas.

Accepted Answer

A) This is an example of adverse selection since banks have difficulty selecting their customers. 
B) This example does not involve asymmetric information. 
C) From the given information, Steve is the principal and Summit Bank is the agent. 
D) None of the above are correct. 
A) This is an example of adverse selection since banks have difficulty selecting their customers. 
B) This example does not involve asymmetric information. 
C) From the given information, Steve is the principal and Summit Bank is the agent. 
D) None of the above are correct.

Question 6

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

Question 7

​Suppose there are 3 possible outcomes to a vote: A, B, and C. If voters prefer A to B, B to C, and C to A, which of the following concepts are violated?

Accepted Answer

A) ​Transitivity 
B) ​Arrow's impossibility theorem 
C) ​Median voter theorem 
D) ​None of the above concepts are violated. 
A) ​Transitivity 
B) ​Arrow's impossibility theorem 
C) ​Median voter theorem 
D) ​None of the above concepts are violated.

Question 8

Which of the following is an attempt to reduce the problem 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) An insurance company requires people who want to purchase life insurance to take a physical exam. 
C) When someone is considering buying a used car from a dealership, the potential buyer requests documentation of the repair history of the car. 
D) All of the above are correct. 
A) When someone is applying for a job, the employer checks references to determine the previous work habits of the applicant. 
B) An insurance company requires people who want to purchase life insurance to take a physical exam. 
C) When someone is considering buying a used car from a dealership, the potential buyer requests documentation of the repair history of the car. 
D) All of the above are correct.

Question 9

Which of the following practices are, at least in part, attempts to reduce moral hazard problems?

Accepted Answer

A) The income of waiters and waitresses depends heavily on tips. 
B) An employer pays below equilibrium wages because he thinks his employees are not working as hard as they could be. 
C) The professors leaves the room to prevent cheating on exams. 
D) Tenure professors are not supervised closely. 
A) The income of waiters and waitresses depends heavily on tips. 
B) An employer pays below equilibrium wages because he thinks his employees are not working as hard as they could be. 
C) The professors leaves the room to prevent cheating on exams. 
D) Tenure professors are not supervised closely.

Question 10

According to behavioral economics, an employee will likely

Accepted Answer

A) work harder if she is a satisficer and if she believes a coworker is overpaid. 
B) work harder if she is a satisficer, but work less hard if she believes a coworker is overpaid. 
C) work harder if she believes a coworker is overpaid, but work less hard if she is a satisficer. 
D) work less hard if she is a satisficer and if she believes a coworker is overpaid. 
A) work harder if she is a satisficer and if she believes a coworker is overpaid. 
B) work harder if she is a satisficer, but work less hard if she believes a coworker is overpaid. 
C) work harder if she believes a coworker is overpaid, but work less hard if she is a satisficer. 
D) work less hard if she is a satisficer and if she believes a coworker is overpaid.

Question 11

Which of the following relationships involves asymmetric information?

Accepted Answer

A) An employee is unsure what she will spend her annual performance bonus on. 
B) A loan applicant knows more about the likelihood her business will be successful than the loan officer. 
C) Someone considering buying running shoes looks at a number of online reviews by buyers. 
D) All of the above are correct. 
A) An employee is unsure what she will spend her annual performance bonus on. 
B) A loan applicant knows more about the likelihood her business will be successful than the loan officer. 
C) Someone considering buying running shoes looks at a number of online reviews by buyers. 
D) All of the above are correct.

Question 12

Table 22-22
The town of Fairview is considering a renovation to the high school. The voters in Fairview have different preferences on the budget for the renovation as displayed below.  
-Refer to Table 22-22. The median voter is one who prefers to spend

Accepted Answer

A) $12 million. 
B) $16 million 
C) $20 million. 
D) None of the above are correct. 
A) $12 million. 
B) $16 million 
C) $20 million. 
D) None of the above are correct.

Question 13

Table 22-22
The town of Fairview is considering a renovation to the high school. The voters in Fairview have different preferences on the budget for the renovation as displayed below.  
-Refer to Table 22-22. If there is a vote between a budget of $12 million and $16 million, the median voter will vote to spend

Accepted Answer

A) $12 million and the voting outcome will be $12 million. 
B) $12 million and the voting outcome will be $16 million. 
C) $16 million and the voting outcome will be $12 million. 
D) $16 million and the voting outcome will be $16 million. 
A) $12 million and the voting outcome will be $12 million. 
B) $12 million and the voting outcome will be $16 million. 
C) $16 million and the voting outcome will be $12 million. 
D) $16 million and the voting outcome will be $16 million.

Question 14

People interpret evidence to confirm beliefs they already hold. This statement is an example of which of the following systematic mistakes that people make?

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 15

An efficiency wage

Accepted Answer

A) gives an employee an incentive to shirk his duties. 
B) is lower than the equilibrium wage for that position and region. 
C) is higher than the equilibrium wage for that position and region. 
D) both a and b are correct. 
A) gives an employee an incentive to shirk his duties. 
B) is lower than the equilibrium wage for that position and region. 
C) is higher than the equilibrium wage for that position and region. 
D) both a and b are correct.

Question 16

According to the median voter theorem, majority rule will produce an outcome that is inconsistent with transitive preferences.

Accepted Answer

A) True 
 B)False

Question 17

​Economists have found that entrepreneurs are likely to have subjective beliefs about the probability of entrepreneurial success that are higher than the actual objective probabilities. These beliefs are most closely related to which of the following behavior concepts?

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) ​People are inconsistent over time. 
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) ​People are inconsistent over time.

Question 18

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 19

Moral hazard and adverse selection are similar asymmetric information problems but moral hazard involves hidden actions while adverse selection involves hidden characteristics.

Accepted Answer

A) True 
 B)False

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

Exam 22: Frontiers in Microeconomics

The Condorcet voting paradox applies to situations in which voters

Studies show that during the March Madness college basketball tournament, the productivity of the average company in the US falls considerably. This is an example of

Which of the following offers an explanation as to why the principal-agent problem exists for a firm?

Steve borrowed some money from Summit Bank, telling the loan officer that he intended to use the money to remodel his restaurant. After getting the loan, Steve and his girlfriend immediately took the money and went gambling in Vegas.

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

​Suppose there are 3 possible outcomes to a vote: A, B, and C. If voters prefer A to B, B to C, and C to A, which of the following concepts are violated?

Which of the following is an attempt to reduce the problem of asymmetric information?

Which of the following practices are, at least in part, attempts to reduce moral hazard problems?

According to behavioral economics, an employee will likely

Which of the following relationships involves asymmetric information?

Table 22-22 The town of Fairview is considering a renovation to the high school. The voters in Fairview have different preferences on the budget for the renovation as displayed below. -Refer to Table 22-22. The median voter is one who prefers to spend

People interpret evidence to confirm beliefs they already hold. This statement is an example of which of the following systematic mistakes that people make?

An efficiency wage

According to the median voter theorem, majority rule will produce an outcome that is inconsistent with transitive preferences.

​Economists have found that entrepreneurs are likely to have subjective beliefs about the probability of entrepreneurial success that are higher than the actual objective probabilities. These beliefs are most closely related to which of the following behavior concepts?

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

Moral hazard and adverse selection are similar asymmetric information problems but moral hazard involves hidden actions while adverse selection involves hidden characteristics.

When economists assume that people are rational, they assume that

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

Suppose there are 3 possible outcomes to a vote: A, B, and C. If voters prefer A to B, B to C, and C to A, which of the following concepts are violated?

Economists have found that entrepreneurs are likely to have subjective beliefs about the probability of entrepreneurial success that are higher than the actual objective probabilities. These beliefs are most closely related to which of the following behavior concepts?