Question 1

Adverse selection is a problem that arises in markets where:

Accepted Answer

A)  the seller kars mare about the attributes of the gode being sold than the buyer does 
B)  the buyer kows more about the attributes of the good being sold than the seller does 
C)  only used cars are baught and sald 
D)  both buyers and sellers heve the smme kowledge about the attributes of the good 
A)  the seller kars mare about the attributes of the gode being sold than the buyer does 
B)  the buyer kows more about the attributes of the good being sold than the seller does 
C)  only used cars are baught and sald 
D)  both buyers and sellers heve the smme kowledge about the attributes of the good A

Question 2

Arrow's impossibility theorem suggests that:

Accepted Answer

A) a voting system will be ideal if the properties of intransitivity and dependence of irrelevant alternatives are satisfied 
B) a voting system will be ideal if some form of dictatorship is allowed 
C) under certain conditions, there is no scheme for aggregating individual preferences into a valid set of social preferences 
D) none of the above 
A) a voting system will be ideal if the properties of intransitivity and dependence of irrelevant alternatives are satisfied 
B) a voting system will be ideal if some form of dictatorship is allowed 
C) under certain conditions, there is no scheme for aggregating individual preferences into a valid set of social preferences 
D) none of the above C

Question 3

The signalling power of giving a gift is of most value when the asymmetry of information is greatest.

Accepted Answer

A) True 
 B)False  True

Question 4

When a seller of a good knows more about the quality of a product than the buyer, this is known as:

Accepted Answer

A)  asthmetric informetion 
B)  moral hazard 
C)  moral delinquency 
D)  aberse selection 
A)  asthmetric informetion 
B)  moral hazard 
C)  moral delinquency 
D)  aberse selection

Question 5

In the context of a voting system, independence of irrelevant alternatives means that:

Accepted Answer

A) if everyone prefers $ A $ to $ B $, then $ A $ should beat $ B $ 
B) if $ A $ beats $ B $, and $ B $ beats $ C $, then $ A $ should beat $ C $ 
C) there this no person that always gets his way, regardless of everyone else's preferences 
D) the ranking between any two outcomes $ \mathrm{A} $ and $ \mathrm{B} $ should not depend on whether some third outcome $ C $ is also available 
A) if everyone prefers $ A $ to $ B $, then $ A $ should beat $ B $ 
B) if $ A $ beats $ B $, and $ B $ beats $ C $, then $ A $ should beat $ C $ 
C) there this no person that always gets his way, regardless of everyone else's preferences 
D) the ranking between any two outcomes $ \mathrm{A} $ and $ \mathrm{B} $ should not depend on whether some third outcome $ C $ is also available

Question 6

Which of the following are examples of the moral hazard problem?
i. the employment relationship between a worker and an employer
ii. an insured homeowner who buys too many fire extinguishers
iii. homeowners who choose to live in a high flood risk area when the government bears the cost of disaster relief

Accepted Answer

A)  (1) any 
B)  (i) and (ii) 
C)  (i) and (iii) 
D)  (ii) and (iii) 
A)  (1) any 
B)  (i) and (ii) 
C)  (i) and (iii) 
D)  (ii) and (iii)

Question 7

In the moral hazard problem the principal performs some task on behalf of the agent.

Accepted Answer

A) True 
 B)False

Question 8

Experiments suggest that people:
(i) lack confidence in their own abilities
(ii) give too much weight to a small number of vivid observations
(iii) interpret evidence to confirm beliefs they already have

Accepted Answer

A) (i) only 
B) (i) and (ii) 
C) (i) and (iii) 
D) (ii) and (iii) 
A) (i) only 
B) (i) and (ii) 
C) (i) and (iii) 
D) (ii) and (iii)

Question 9

Results of the ultimatum game suggests that:

Accepted Answer

A) considerations of fairness may play a role in economic behaviour 
B) considerations of fairness play no role in economic behaviour 
C) economists should abandon assumptions of individual self-interest in their models 
D) none of the above 
A) considerations of fairness may play a role in economic behaviour 
B) considerations of fairness play no role in economic behaviour 
C) economists should abandon assumptions of individual self-interest in their models 
D) none of the above

Question 10

When signing up for monthly charity donations, often the first payment does not occur immediately, but rather in two months time.Research has showed that when structured this way, many more people sign up to donate.This behaviour is an example of:

Accepted Answer

A) people being reluctant to change their minds 
B) people caring about fairness 
C) people being time-inconsistent 
D) people giving too much weight to vivid observations 
A) people being reluctant to change their minds 
B) people caring about fairness 
C) people being time-inconsistent 
D) people giving too much weight to vivid observations

Question 11

Gift-giving can be explained through asymmetric information and signalling.

Accepted Answer

A) True 
 B)False

Question 12

An implication of asymmetric information in the insurance market is that people in average health may be encouraged to purchase health insurance.

Accepted Answer

A) True 
 B)False

Question 13

One implication of the lemons problem is that:

Accepted Answer

A)  a used car only a few days old will often sell for less than a new car of the same type 
B)  many people have an incentive to buy vehicles in the used car market 
C)  used cars have a market value almost identical to that of new cars 
D)  buyers are just as aware of vehicle defects as the sellers of used cars 
A)  a used car only a few days old will often sell for less than a new car of the same type 
B)  many people have an incentive to buy vehicles in the used car market 
C)  used cars have a market value almost identical to that of new cars 
D)  buyers are just as aware of vehicle defects as the sellers of used cars

Question 14

Experiments suggest that people:
(i) are over-confident about their own abilities
(ii) give too little weight to a small number of vivid observations
(iii) interpret evidence to confirm beliefs they already have

Accepted Answer

A) (I) only 
B) (i) and (ii) 
C) (i) and (iii) 
D) (ii) and (iii) 
A) (I) only 
B) (i) and (ii) 
C) (i) and (iii) 
D) (ii) and (iii)

Question 15

Given asymmetric information, car insurance companies might encourage risky drivers to identify themselves by distributing a driving history questionnaire.

Accepted Answer

A) True 
 B)False

Question 16

Experiments suggest that people tend to interpret evidence to confirm beliefs they already hold.

Accepted Answer

A) True 
 B)False

Question 17

Arrow's impossibility theorem suggests that a voting system will be ideal if the properties of intransitivity and dependence of irrelevant alternatives are satisfied.

Accepted Answer

A) True 
 B)False

Question 18

Political economy:

Accepted Answer

A) tends to view human behaviour as less complex than that found in conventional economio theory 
B)  brings some of the insights from psychology into the study of economic issues 
C) applies the tools of economics to understand the functioning of government 
D) includes topics such as adverse selection and moral hazard 
A) tends to view human behaviour as less complex than that found in conventional economio theory 
B)  brings some of the insights from psychology into the study of economic issues 
C) applies the tools of economics to understand the functioning of government 
D) includes topics such as adverse selection and moral hazard

Question 19

If signalling is applied to advertising:

Accepted Answer

A)  a firm with a good product reaps a relatively small benefit from advertising 
B)  firms ignore the possibility of repeated customers 
C)  it is rational for a firm with a good product to pay for the cost of the signal 
D)  all firms have the same incentive to advertise 
A)  a firm with a good product reaps a relatively small benefit from advertising 
B)  firms ignore the possibility of repeated customers 
C)  it is rational for a firm with a good product to pay for the cost of the signal 
D)  all firms have the same incentive to advertise

Question 20

Asymmetric information is:

Accepted Answer

A) very rare in the Australian economy 
B) very commonplace in the Australian economy 
C) non-existent in the Australian economy 
D) irrelevant to the study of the markets in the Australian economy 
A) very rare in the Australian economy 
B) very commonplace in the Australian economy 
C) non-existent in the Australian economy 
D) irrelevant to the study of the markets in the Australian economy

Exam 23: Frontiers of Microeconomics

Adverse selection is a problem that arises in markets where:

Arrow's impossibility theorem suggests that:

The signalling power of giving a gift is of most value when the asymmetry of information is greatest.

When a seller of a good knows more about the quality of a product than the buyer, this is known as:

In the context of a voting system, independence of irrelevant alternatives means that:

In the moral hazard problem the principal performs some task on behalf of the agent.

Experiments suggest that people: (i) lack confidence in their own abilities (ii) give too much weight to a small number of vivid observations (iii) interpret evidence to confirm beliefs they already have

Results of the ultimatum game suggests that:

When signing up for monthly charity donations, often the first payment does not occur immediately, but rather in two months time.Research has showed that when structured this way, many more people sign up to donate.This behaviour is an example of:

Gift-giving can be explained through asymmetric information and signalling.

An implication of asymmetric information in the insurance market is that people in average health may be encouraged to purchase health insurance.

One implication of the lemons problem is that:

Experiments suggest that people: (i) are over-confident about their own abilities (ii) give too little weight to a small number of vivid observations (iii) interpret evidence to confirm beliefs they already have

Given asymmetric information, car insurance companies might encourage risky drivers to identify themselves by distributing a driving history questionnaire.

Experiments suggest that people tend to interpret evidence to confirm beliefs they already hold.

Arrow's impossibility theorem suggests that a voting system will be ideal if the properties of intransitivity and dependence of irrelevant alternatives are satisfied.

Political economy:

If signalling is applied to advertising:

Asymmetric information is:

Ten Lessons From 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

Application: 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

Business Strategy and Oligopoly

Competition Policy

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity 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

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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 Trade-Off Between Inflation and Unemployment

Global Financial Crisis of 2008 and Beyond

Five Debates Over Macroeconomic Policy

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