Question 1

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.

Question 2

Scenario 22-3
​
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 22-3. What is the name for the problem Katie creates by lying about the quality of the jeans?

Accepted Answer

The answer of Scenario 22-3
​
Shana owns a boutique that sells...

Question 3

Table 22-5
The following table shows the number of voters preferring various amounts of spending to develop a river to make it more attractive for canoeing and kayaking.
​
 $$\begin{array} { | c | c | } 
\hline \text { Number of Voters } & \begin{array} { c } 
\text { Preferred Spending } \
\text { (Millions of dollars) }
\end{array} \
\hline 1 & \$ 0.0 \
\hline 4 & \$ 0.5 \
\hline 20 & \$ 1.0 \
\hline 22 & \$ 1.5 \
\hline 25 & \$ 2.0 \
\hline 35 & \$ 2.5 \
\hline 15 & \$ 3.0 \
\hline
\end{array}$$
-Refer to Table 22-5. Suppose on election day that the voters with a preference for less than $1.5 million do not show up to vote on a choice to spend either $2 million or $2.5 million. In this case, what is the preferred spending amount of the median voter (among those who actually cast a vote)?

Accepted Answer

A) $2 million and $2 million wins. 
B) $2 million but $2.5 million wins. 
C) $2.5 million and $2.5 million wins. 
D) $2.5 million but $2 million wins. 
A) $2 million and $2 million wins. 
B) $2 million but $2.5 million wins. 
C) $2.5 million and $2.5 million wins. 
D) $2.5 million but $2 million wins.

Question 4

An unhealthy person would likely choose a medical insurance policy with a

Accepted Answer

A) low premium and a high deductible. 
B) high premium and a high deductible. 
C) high premium and no deductible. 
D) The unhealthy person would choose not to be insured. 
A) low premium and a high deductible. 
B) high premium and a high deductible. 
C) high premium and no deductible. 
D) The unhealthy person would choose not to be insured.

Question 5

Which of the following is an example of an adverse selection problem?

Accepted Answer

A) A customer purchases four apples, two of which are bruised. 
B) A card shop puts its Halloween merchandise on sale on November 1st. 
C) A young job applicant fails to reveal that she was fired from her last job because she was incompetent. 
D) A man rents a car and then drives it less carefully and fills it with cheaper gas than he would if he owned it. 
A) A customer purchases four apples, two of which are bruised. 
B) A card shop puts its Halloween merchandise on sale on November 1st. 
C) A young job applicant fails to reveal that she was fired from her last job because she was incompetent. 
D) A man rents a car and then drives it less carefully and fills it with cheaper gas than he would if he owned it.

Question 6

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. If the travelers decide to use a Borda count, what is the result?

Accepted Answer

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

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. If (1) the first vote pits "soccer game" against "play," and (2) the second vote pits "baseball" against the winner of the first vote, then the outcome is as follows:

Accepted Answer

A) "Soccer game" wins the first vote and "soccer game" wins the second vote, so they go to a soccer game. 
B) "Soccer game" wins the first vote and "baseball" wins the second vote, so they play baseball. 
C) "Play" wins the first vote and "play" wins the second vote, so they go to a soccer game. 
D) "Play" wins the first vote and "baseball" wins the second vote, so they play baseball. 
A) "Soccer game" wins the first vote and "soccer game" wins the second vote, so they go to a soccer game. 
B) "Soccer game" wins the first vote and "baseball" wins the second vote, so they play baseball. 
C) "Play" wins the first vote and "play" wins the second vote, so they go to a soccer game. 
D) "Play" wins the first vote and "baseball" wins the second vote, so they play baseball.

Question 8

The field of behavioral economics builds a more subtle and complex model of economic behavior using insights from

Accepted Answer

A) physics. 
B) biology. 
C) psychology. 
D) anthropology. 
A) physics. 
B) biology. 
C) psychology. 
D) anthropology.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

The Borda count fails to satisfy which of Kenneth Arrow's properties of a 'perfect' voting system?

Accepted Answer

A) No dictator 
B) Unanimity 
C) Transitivity 
D) Independence of irrelevant alternatives 
A) No dictator 
B) Unanimity 
C) Transitivity 
D) Independence of irrelevant alternatives

Question 11

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. Explain why the Condorcet paradox applies to this voting situation.

Accepted Answer

The majority rule do

Question 12

Table 22-1
Three friends-Stephanie, Stella, and Lydia-are deciding where to go together for vacation. They all agree that they should go to one of the three places: Italy, Spain, or Hawaii. 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 following table.
​
​
 $$\begin{array} { | c | c | c | c | } 
\hline & \text { Stephanie } & \text { Stella } & \text { Lydia } \
\hline \text { First choice } & \text { Italy } & \text { Spain } & \text { Hawaii } \
\hline \text { Second choice } & \text { Spain } & \text { Hawaii } & \text { Italy } \
\hline \text { Third choice } & \text { Hawaii } & \text { Italy } & \text { Spain } \
\hline
\end{array}$$
-Refer to Table 22-1. If the first vote pits Spain against Hawaii and the second vote pits Italy against the winner of the first vote, then the outcome is as follows:

Accepted Answer

A) Spain wins the first vote and Italy wins the second vote, so they go to Italy. 
B) Spain wins the first vote and Spain wins the second vote, so they go to Spain. 
C) Hawaii wins the first vote and Hawaii wins the second vote, so they go to Hawaii. 
D) Hawaii wins the first vote and Italy wins the second vote, so they go to Italy. 
A) Spain wins the first vote and Italy wins the second vote, so they go to Italy. 
B) Spain wins the first vote and Spain wins the second vote, so they go to Spain. 
C) Hawaii wins the first vote and Hawaii wins the second vote, so they go to Hawaii. 
D) Hawaii wins the first vote and Italy wins the second vote, so they go to Italy.

Question 13

Scenario 22-3
​
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 22-3. Which of the ladies, if any, is committing a moral hazard?

Accepted Answer

The answer of Scenario 22-3
​
Shana owns a boutique that sells...

Question 14

People are willing to give up monetary rewards to promote fairness.​

Accepted Answer

A) True 
 B)False

Question 15

Table 22-6
A wireless telephone service provider offers three service plans to its consumers.
 $$\begin{array} { | l | l | l | l | l | } 
\hline & \text { Peak Minutes } & \text { Messaging } & \text { Data Usage } & \text { Monthly Fee } \
\hline \text { Plan A } & 450 & 200 & 2 \mathrm {~GB} / \text { month } & \$ 69.99 \
\hline \text { Plan B } & 900 & 1000 & 5 \mathrm {~GB} / \text { month } & \$ 119.99 \
\hline \text { Plan C } & \text { Unlimited } & \text { Unlimited } & \text { Unlimited } & \$ 149.99 \
\hline
\end{array}$$
-Refer to Table 22-6. By offering consumers these choices and allowing them to select the plan that best meets their needs, the wireless service provider is engaging in

Accepted Answer

The answer of Table 22-6
A wireless telephone service provider offers...

Question 16

When an individual purchases health insurance and knows more about her family medical history than the insurance company, this is an example of adverse selection​.​

Accepted Answer

A) True 
 B)False

Question 17

The classic example of adverse selection is the

Accepted Answer

A) market for used cars. 
B) market for new cars. 
C) relationship between shareholders and managers. 
D) relationship between a coach and an athlete. 
A) market for used cars. 
B) market for new cars. 
C) relationship between shareholders and managers. 
D) relationship between a coach and an athlete.

Question 18

The field of economics in which the tools of economics are used to understand the functioning of government is

Accepted Answer

The answer of The field of economics in which the...

Question 19

The Condorcet paradox

Accepted Answer

A) proved that the Arrow impossibility theorem is wrong. 
B) was proved wrong by the Arrow impossibility theorem. 
C) serves as an example of the Arrow impossibility theorem. 
D) pertains to voting systems, whereas Arrow's Impossibility Theorem does not. 
A) proved that the Arrow impossibility theorem is wrong. 
B) was proved wrong by the Arrow impossibility theorem. 
C) serves as an example of the Arrow impossibility theorem. 
D) pertains to voting systems, whereas Arrow's Impossibility Theorem does not.

Question 20

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 the victim of an adverse selection problem?

Accepted Answer

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

Exam 22: Frontiers in Microeconomics

When economists assume that people are rational, they assume that

An unhealthy person would likely choose a medical insurance policy with a

Which of the following is an example of an adverse selection problem?

The field of behavioral economics builds a more subtle and complex model of economic behavior using insights from

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

The Borda count fails to satisfy which of Kenneth Arrow's properties of a 'perfect' voting system?

People are willing to give up monetary rewards to promote fairness.​

When an individual purchases health insurance and knows more about her family medical history than the insurance company, this is an example of adverse selection​.​

The classic example of adverse selection is the

The field of economics in which the tools of economics are used to understand the functioning of government is

The Condorcet paradox

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

Filters

People are willing to give up monetary rewards to promote fairness.

When an individual purchases health insurance and knows more about her family medical history than the insurance company, this is an example of adverse selection.