Question 1

Screening is an action taken by an uninformed party to induce an informed party to reveal information.

Accepted Answer

A) True 
 B)False

Question 2

Maria and Jose installed a "nanny-camera" in their home so that they can view how the nanny is interacting with their children while they are at work. What type of problem are they trying to combat?

Accepted Answer

The answer of Maria and Jose installed a "nanny-camera" in...

Question 3

The tendency of many people to procrastinate supports the view that people are consistent over time.

Accepted Answer

A) True 
 B)False

Question 4

If the seller of a used car offers a limited warranty, the warranty is an example of

Accepted Answer

A) a signal. 
B) a screen. 
C) an efficiency wage. 
D) an agent. 
A) a signal. 
B) a screen. 
C) an efficiency wage. 
D) an agent.

Question 5

Scenario 22-1
​
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 blouse she is considering purchasing. Even though she's had several other customers return this type of blouses due to flaws, Katie tells Belinda the quality is great. Magda is another customer who is returning a necklace without revealing that she lost a gem from it while wearing it.
-Refer to Scenario 22-1. Which of the ladies is causing a moral hazard problem?

Accepted Answer

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

Question 6

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 7

Table 22-2
Three longtime friends-Stephanie, Stella, and Lydia-are deciding how they will spend their Sunday afternoon. They all agree that they should do one of the three things: go to a play, play baseball, or go to a soccer game. They also agree that they will have two pairwise votes to determine how to spend their afternoon, with the majority determining the outcome on each vote. The first, second, and third choices for each person are as indicated in the following table.
​
​
 $$\begin{array} { | c | c | c | c | } 
\hline & \text { Stephanie } & \text { Stella } & \text { Lydia } \
\hline \text { First choice } & \text { soccer game } & \text { baseball } & \text { play } \
\hline \text { Second choice } & \text { baseball } & \text { play } & \text { soccer game } \
\hline \text { Third choice } & \text { play } & \text { soccer game } & \text { baseball } \
\hline
\end{array}$$
-Refer to Table 22-2. Which of the following statements is correct regarding the Condorcet paradox and the results of pairwise voting by Stephanie, Stella, and Lydia?

Accepted Answer

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

Question 8

An implication of the median voter theorem is that Republicans and Democrats will try to align their views with those of the median voter.

Accepted Answer

A) True 
 B)False

Question 9

Mary decides to save $50 from each paycheck for a trip to Europe. But she spends her entire paycheck on new clothes. Which of the following systematic mistakes does this illustrate?

Accepted Answer

A) People give too much weight to a small number of vivid observations. 
B) People's behavior often exhibits inertia. 
C) People are reluctant to change their minds. 
D) People are overconfident. 
A) People give too much weight to a small number of vivid observations. 
B) People's behavior often exhibits inertia. 
C) People are reluctant to change their minds. 
D) People are overconfident.

Question 10

The Condorcet voting paradox shows that outcomes based on dictatorial preferences do not always obey the property of transitivity.

Accepted Answer

A) True 
 B)False

Question 11

Table 22-3
​
  
-Refer to Table 22-3. The table shows the preferences of 100 voters over three possible outcomes: A, B, and C. If a Borda count election were held among these voters, giving three points to each voter's first choice, two points to the second choice, and one point to the last choice, which outcome would win the election?

Accepted Answer

A) Outcome A 
B) Outcome B 
C) Outcome C 
D) Either outcome A or outcome C since these have the same total score. 
A) Outcome A 
B) Outcome B 
C) Outcome C 
D) Either outcome A or outcome C since these have the same total score.

Question 12

Employers can try to overcome the moral-hazard problem involving their employees by

Accepted Answer

A) paying their employees more often. 
B) paying their employees below-equilibrium wages since the employees will likely shirk some of their responsibilities. 
C) better monitoring their employees' work efforts. 
D) requiring their employees to take a pre-employment work effort test. 
A) paying their employees more often. 
B) paying their employees below-equilibrium wages since the employees will likely shirk some of their responsibilities. 
C) better monitoring their employees' work efforts. 
D) requiring their employees to take a pre-employment work effort test.

Question 13

In corporations, which of the following are the principals in the principal-agent relationship?

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 14

Which of the following is an example of satisficing behavior?

Accepted Answer

A) You continue studying for your economics exam until you believe you'll get a score that's good enough. 
B) You spend time looking over the lettuce at the grocery store in order to make sure you get the best head of lettuce. 
C) You clean your room to the point where you think it's clean enough that further time can be used for more productive purposes. 
D) You carefully plan your day in order to get "the most out of life." 
A) You continue studying for your economics exam until you believe you'll get a score that's good enough. 
B) You spend time looking over the lettuce at the grocery store in order to make sure you get the best head of lettuce. 
C) You clean your room to the point where you think it's clean enough that further time can be used for more productive purposes. 
D) You carefully plan your day in order to get "the most out of life."

Question 15

Table 22-9
Sophie, Huan, and Santiago are lost with no map or GPS available. They come to an intersection at which they can turn left, turn right, or continue going straight. Their preferences are summarized in the table.
 $$\begin{array} { | l | l | l | l | } 
\hline & \text { Sophie } & \text { Huan } & \text { Santiago } \
\hline \text { First choice } & \text { Left } & \text { Right } & \text { Straight } \
\hline \text { Second choice } & \text { Right } & \text { Straight } & \text { Left } \
\hline \text { Third choice } & \text { Straight } & \text { Left } & \text { Right } \
\hline
\end{array}$$
-Refer to Table 22-9. The travelers decide to conduct pairwise voting with the majority determining the outcome of each vote to decide their next move. If they first choose between going left and going straight, and then choose between the winner of the first vote and going right, which direction will they go?

Accepted Answer

The answer of Table 22-9
Sophie, Huan, and Santiago are lost...

Question 16

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 17

Ed promises his wife that he will mow the lawn on Saturday morning, but when Saturday morning arrives he changes his mind and says he will do it on Sunday. What insight about human behavior can be deduced from Ed's decision?

Accepted Answer

People are

Question 18

The median-voter theorem explains why

Accepted Answer

A) politicians take extreme stands on issues. 
B) voters are attracted to political outsiders. 
C) two opposing politicians tend to take opposite sides of each issues. 
D) politicians tend to take middle-of-the-road positions. 
A) politicians take extreme stands on issues. 
B) voters are attracted to political outsiders. 
C) two opposing politicians tend to take opposite sides of each issues. 
D) politicians tend to take middle-of-the-road positions.

Question 19

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 20

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.

Exam 22: Frontiers in Microeconomics

Screening is an action taken by an uninformed party to induce an informed party to reveal information.

Maria and Jose installed a "nanny-camera" in their home so that they can view how the nanny is interacting with their children while they are at work. What type of problem are they trying to combat?

The tendency of many people to procrastinate supports the view that people are consistent over time.

If the seller of a used car offers a limited warranty, the warranty is an example of

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

An implication of the median voter theorem is that Republicans and Democrats will try to align their views with those of the median voter.

Mary decides to save $50 from each paycheck for a trip to Europe. But she spends her entire paycheck on new clothes. Which of the following systematic mistakes does this illustrate?

The Condorcet voting paradox shows that outcomes based on dictatorial preferences do not always obey the property of transitivity.

Employers can try to overcome the moral-hazard problem involving their employees by

In corporations, which of the following are the principals in the principal-agent relationship?

Which of the following is an example of satisficing behavior?

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.

Ed promises his wife that he will mow the lawn on Saturday morning, but when Saturday morning arrives he changes his mind and says he will do it on Sunday. What insight about human behavior can be deduced from Ed's decision?

The median-voter theorem explains why

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

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 Nations 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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