Question 1

Moral hazard occurs when

Accepted Answer

A) an employer closely monitors an employee. 
B) two people consider a trade with each other and one person has relevant information about some aspect of the product's quality that the other person lacks. 
C) an employee lacks an incentive to promote the best interests of the employer, and the employer cannot observe the actions of the employee. 
D) an employee closely monitors the actions of her employer. 
A) an employer closely monitors an employee. 
B) two people consider a trade with each other and one person has relevant information about some aspect of the product's quality that the other person lacks. 
C) an employee lacks an incentive to promote the best interests of the employer, and the employer cannot observe the actions of the employee. 
D) an employee closely monitors the actions of her employer.

Question 2

An airline knows that business travelers have more inelastic demand for travel than vacationers. That is, business travelers are often willing to pay more for airline tickets than vacationers. The airline also knows that business travelers do not like to travel over weekends. When customers request airline tickets that do not involve travel over a weekend, the airline determines that a traveler is likely a business traveler and charges a higher price. This is an example of

Accepted Answer

A) moral hazard. 
B) signaling. 
C) screening. 
D) adverse selection. 
A) moral hazard. 
B) signaling. 
C) screening. 
D) adverse selection.

Question 3

Explain how the presence of asymmetric information in car insurance markets may lead people who are good drivers or even average drivers to choose not to buy car insurance unless the law requires it.

Accepted Answer

Drivers (buyers and potential buyers of

Question 4

A street vendor sells a replica of a pair of designer shoes to a young woman who believes the shoes are authentic. The street vendor 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 5

Table 22-15
Diane, Henry, and Linda are voting for who to promote. They can only promote one candidate. Their preferences are given in the table below.  
-Refer to Table 22-15. Which of the following statements is correct regarding the Condorcet paradox and the results of pairwise voting by Henry, Diane, and Linda?

Accepted Answer

A) The paradox implies that pairwise voting never produces transitive preferences, and so the voting by Henry, Diane, and Linda fails to produce transitive preferences. 
B) The paradox implies that pairwise voting sometimes (but not always) produces transitive preferences, and the voting by Henry, Diane, and Linda does produce transitive preferences. 
C) The paradox implies that pairwise voting sometimes (but not always) fails to produce transitive preferences, and the voting by Henry, Diane, and Linda fails to produce transitive preferences. 
D) The paradox does not apply to the case at hand, because Henry's preferences are not individually transitive. 
A) The paradox implies that pairwise voting never produces transitive preferences, and so the voting by Henry, Diane, and Linda fails to produce transitive preferences. 
B) The paradox implies that pairwise voting sometimes (but not always) produces transitive preferences, and the voting by Henry, Diane, and Linda does produce transitive preferences. 
C) The paradox implies that pairwise voting sometimes (but not always) fails to produce transitive preferences, and the voting by Henry, Diane, and Linda fails to produce transitive preferences. 
D) The paradox does not apply to the case at hand, because Henry's preferences are not individually transitive.

Question 6

When the buyer knows less than the seller about the characteristics of the good being sold, there is

Accepted Answer

A) a principal-agent problem. 
B) a moral hazard problem. 
C) an adverse selection problem. 
D) a signaling problem. 
A) a principal-agent problem. 
B) a moral hazard problem. 
C) an adverse selection problem. 
D) a signaling problem.

Question 7

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. Suppose before any voting takes place that alternative W is eliminated as an option. Based on this information, the median voter's first choice is

Accepted Answer

A) X 
B) Y 
C) Z 
D) The median voter's first choice cannot be determined from the information given. 
A) X 
B) Y 
C) Z 
D) The median voter's first choice cannot be determined from the information given.

Question 8

Table 22-20
The table below shows the preferred city budget (in millions) for
in the city of Springfield.  
-Refer to Table 22-20. In an election, each voter will select the budget closest to his or her most preferred budget. Using this information, what is the most preferred budget of the median voter?

Accepted Answer

A) $10 
B) $20 
C) $30 
D) $40 
A) $10 
B) $20 
C) $30 
D) $40

Question 9

Scenario 22-6
​
Shana owns a boutique that sells high-end women's clothing and accessories. Katie works part-time at the boutique and frequently is the only employee in this small store. Shana pays Katie a wage that is higher than the market wage for this type of job. When the store is not full of customers, Katie diligently works on displays and cleans to keep the store looking its best. Belinda is a customer in the store who asks Katie's opinion on the quality of some jeans she is considering purchasing. Katie tells her the quality is great even though she's had several other customers return them due to flaws. Magda is another customer who is returning a necklace without volunteering that a gem is missing.
-Refer to Scenario 22-6. What is the term for the type of wage Shana pays Katie?

Accepted Answer

The answer of Scenario 22-6
​
Shana owns a boutique that sells...

Question 10

Table 22-4
The fortunate residents of Anytown have a budget surplus. The mayor decided that it is only fair to have the residents vote on what to do with the surplus. The mayor has narrowed the options down to three possible projects: a playground, a library, or a swimming pool. The voters fall into three categories and have preferences as illustrated in the table.  
-Refer to Table 22-4. If the mayor asks the residents to choose between the library and the swimming pool using pairwise voting,

Accepted Answer

A) the library wins by 30%. 
B) the library wins by 65%. 
C) the swimming pool wins by 10%. 
D) the swimming pool wins by 35%. 
A) the library wins by 30%. 
B) the library wins by 65%. 
C) the swimming pool wins by 10%. 
D) the swimming pool wins by 35%.

Question 11

Table 22-5
The citizens of Anytown will decide whether to build a new library, a recreation center, or an arena. 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 22-5. Which of the following statements is correct?

Accepted Answer

A) In a pairwise election, "library" beats "arena." 
B) In a pairwise election, "arena" beats "recreation center." 
C) In a pairwise election, "library" beats "recreation center." 
D) All of the above are correct. 
A) In a pairwise election, "library" beats "arena." 
B) In a pairwise election, "arena" beats "recreation center." 
C) In a pairwise election, "library" beats "recreation center." 
D) All of the above are correct.

Question 12

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 13

Behavioral economics

Accepted Answer

A) integrates psychological insights into economic models. 
B) relies on the assumption that homo economicus describes economic decision-making. 
C) assumes that economic agents have full information about the conditions surrounding their decisions. 
D) All of the above are correct. 
A) integrates psychological insights into economic models. 
B) relies on the assumption that homo economicus describes economic decision-making. 
C) assumes that economic agents have full information about the conditions surrounding their decisions. 
D) All of the above are correct.

Question 14

What insight into human behavior do economist learn from observing people playing the ultimatum game?

Accepted Answer

People car

Question 15

Table 22-24
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 22-24. Explain why the Condorcet paradox applies to this voting situation.

Accepted Answer

The majority rule do

Question 16

The Condorcet paradox demonstrates that the result of a majority vote may be affected by

Accepted Answer

A) moral hazard. 
B) adverse selection. 
C) the order of the votes. 
D) All of the above are correct. 
A) moral hazard. 
B) adverse selection. 
C) the order of the votes. 
D) All of the above are correct.

Question 17

Table 22-4
The fortunate residents of Anytown have a budget surplus. The mayor decided that it is only fair to have the residents vote on what to do with the surplus. The mayor has narrowed the options down to three possible projects: a playground, a library, or a swimming pool. The voters fall into three categories and have preferences as illustrated in the table.  
-Refer to Table 22-4. If the mayor asks the residents to choose between the playground and the library using pairwise voting,

Accepted Answer

A) the playground wins by 45%. 
B) the playground wins by 60%. 
C) the library wins by 20%. 
D) the library wins by 80%. 
A) the playground wins by 45%. 
B) the playground wins by 60%. 
C) the library wins by 20%. 
D) the library wins by 80%.

Question 18

A safe driver would likely choose an auto insurance policy with a

Accepted Answer

A) low premium and a high deductible. 
B) high premium and a high deductible. 
C) high premium and a low deductible. 
D) high premium and no deductible. 
A) low premium and a high deductible. 
B) high premium and a high deductible. 
C) high premium and a low deductible. 
D) high premium and no deductible.

Question 19

Table 22-12
The following table shows the preferences for the five voters in a city regarding how to deal with the city's diseased trees.   A = do nothing
B = follow the expert's advice to remove every tree
C = remove every 4th tree now and perhaps more later
D = use an untested spraying alternative
-Refer to Table 22-12. Consider the public policy for dealing with diseased trees. Based on the preferences in the table, which of the following statements is correct?

Accepted Answer

A) Outcome D is preferred to outcome C overall. 
B) Outcome B is preferred to outcome C overall. 
C) Outcome D is preferred to outcome B overall. 
D) Outcome A is preferred to outcome D overall. 
A) Outcome D is preferred to outcome C overall. 
B) Outcome B is preferred to outcome C overall. 
C) Outcome D is preferred to outcome B overall. 
D) Outcome A is preferred to outcome D overall.

Question 20

Experiments show that when real people play the ultimatum game, starting with $100,

Accepted Answer

A) Player A usually proposes giving Player B more than $50. 
B) Player B usually accepts Player A's proposal if Player A proposes giving Player B $30 or $40. 
C) players show themselves to be rational wealth-maximizers. 
D) Player B will usually demand an even split. 
A) Player A usually proposes giving Player B more than $50. 
B) Player B usually accepts Player A's proposal if Player A proposes giving Player B $30 or $40. 
C) players show themselves to be rational wealth-maximizers. 
D) Player B will usually demand an even split.

Exam 22: Frontiers in Microeconomics

Moral hazard occurs when

Explain how the presence of asymmetric information in car insurance markets may lead people who are good drivers or even average drivers to choose not to buy car insurance unless the law requires it.

A street vendor sells a replica of a pair of designer shoes to a young woman who believes the shoes are authentic. The street vendor is engaging in

When the buyer knows less than the seller about the characteristics of the good being sold, there is

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

Behavioral economics

What insight into human behavior do economist learn from observing people playing the ultimatum game?

The Condorcet paradox demonstrates that the result of a majority vote may be affected by

A safe driver would likely choose an auto insurance policy with a

Experiments show that when real people play the ultimatum game, starting with $100,

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

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