Question 1

Gift-giving can be explained through:

Accepted Answer

A) screening 
B) moral hazard 
C) asymmetric information and signalling 
D) none of the alove 
A) screening 
B) moral hazard 
C) asymmetric information and signalling 
D) none of the alove

Question 2

Which of the following is an example of signalling?
(i) department stores buying extra advertising space before an upcoming sale
(ii) a student obtaining a university degree in philosophy
(iii) wearing specific brands and styles of clothing out on a Saturday night

Accepted Answer

A)  (i) and (i) anly 
B)  (ii) and (ii) any 
C)  (i) and (ii) any 
D)  (i), (i) and (ii) 
A)  (i) and (i) anly 
B)  (ii) and (ii) any 
C)  (i) and (ii) any 
D)  (i), (i) and (ii)

Question 3

If signalling is applied to advertising:

Accepted Answer

A) a firm with a good product reaps a relatively small benefit from advertising 
B) firms recognise the possibility of repeated customers 
C) it is irrational 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 recognise the possibility of repeated customers 
C) it is irrational 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 4

Parties in a two-party political system tend to put forward similar policies because:

Accepted Answer

A) of the median voter theorem 
B) of the average voter theorem 
C) politicians find it hard to think of new policies: 
D) voters don't like things to change 
A) of the median voter theorem 
B) of the average voter theorem 
C) politicians find it hard to think of new policies: 
D) voters don't like things to change

Question 5

Education and advertising are two examples of:

Accepted Answer

A) signalling 
B) adverse selection 
C) moral hazard 
D) the Condorcet paradox 
A) signalling 
B) adverse selection 
C) moral hazard 
D) the Condorcet paradox

Question 6

The median voter theorem can:

Accepted Answer

A) explain why the parties in a two-party political system tend to put forward very different policies 
B) explain why the parties in a two-party political system tend to adopt rather extreme political platforms. 
C) explain why the parties in a two-party political system are similar to each other 
D) none of the above 
A) explain why the parties in a two-party political system tend to put forward very different policies 
B) explain why the parties in a two-party political system tend to adopt rather extreme political platforms. 
C) explain why the parties in a two-party political system are similar to each other 
D) none of the above

Question 7

Arrow's impossibility theorem is named after the:

Accepted Answer

A) the ex-US president Walter Arrow 
B) economist, Kenneth Arrow 
C) direction that is required in order to rank possible outcomes 
D) French political theorist Marquis de Arrow 
A) the ex-US president Walter Arrow 
B) economist, Kenneth Arrow 
C) direction that is required in order to rank possible outcomes 
D) French political theorist Marquis de Arrow

Question 8

According to Kennerth Arrow, which of the following properties would be present in a perfect voting scheme?
(i) unanimity: if everyone prefers A to B, then A should beat B
(ii) transitivity: if A beats B, and B beats C, then A should beat C
(iii) universality: everyone in society has the right to vote

Accepted Answer

A) (i) anly 
B) (i) and (i) any 
C) (ii) and (iii) anly 
D) (i), (ii) and (iii) 
A) (i) anly 
B) (i) and (i) any 
C) (ii) and (iii) anly 
D) (i), (ii) and (iii)

Question 9

In the context of a voting system, unanimity means that:

Accepted Answer

A) if option $ X $ beats option $ Y $, and $ Y $ beats $ Z $, then $ X $ should beat $ Z $ 
B) if $ A $ beats $ B $, and $ B $ beats $ C $, then $ A $ should beat $ C $ 
C) the ranking between any two outcomes $ \mathrm{A} $ and $ \mathrm{B} $ should not depend on whether some third outcome $ C $ is also available 
D) if everyone prefers option $ X $ to option $ Y $, then $ X $ should beat $ Y $ 
A) if option $ X $ beats option $ Y $, and $ Y $ beats $ Z $, then $ X $ should beat $ Z $ 
B) if $ A $ beats $ B $, and $ B $ beats $ C $, then $ A $ should beat $ C $ 
C) the ranking between any two outcomes $ \mathrm{A} $ and $ \mathrm{B} $ should not depend on whether some third outcome $ C $ is also available 
D) if everyone prefers option $ X $ to option $ Y $, then $ X $ should beat $ Y $

Question 10

The median voter is:

Accepted Answer

A) any voter in a democratic system 
B) the voter at the start of a distribution 
C) the voter at the end of a distribution 
D) the voter exactly in the middle of a distribution 
A) any voter in a democratic system 
B) the voter at the start of a distribution 
C) the voter at the end of a distribution 
D) the voter exactly in the middle of a distribution

Question 11

Suppose an insurance company wishes to separate out drivers based on whether they are high-risk or low-risk drivers.It can do this by offering two different pricing schemes: one the appeals to low-risk drivers and another that appeals to high risk drivers.Which of the following pricing schemes would best appeal to a high-risk driver? NB: a deductable is the amount that the driver would have to pay in the event of a claim:

Accepted Answer

A) a high premium but low deductable 
B) a low premium and high deductable 
C) a high premium and high deductible 
D) none. High risk drivers prefer not to take out insurance 
A) a high premium but low deductable 
B) a low premium and high deductable 
C) a high premium and high deductible 
D) none. High risk drivers prefer not to take out insurance

Question 12

Adverse selection is a problem that arises in markets where the seller knows more about the attributes of the good being sold than the buyer does.

Accepted Answer

A) True 
 B)False

Question 13

The problem of asymmetric information is absent in the moral hazard problem.

Accepted Answer

A) True 
 B)False

Question 14

One implication of the lemons problem is that many people have an incentive to buy vehicles in the used car market.

Accepted Answer

A) True 
 B)False

Question 15

If signalling is applied to advertising:

Accepted Answer

A) not all firms heve the same incentive to atvertise 
B) firms ignore the possibility of repeated customers 
C) it is irrational for a firm with a good product to pay for the cost of the signal 
D) a Firm with a good product reaps a relatively small benefit from atvertising 
A) not all firms heve the same incentive to atvertise 
B) firms ignore the possibility of repeated customers 
C) it is irrational for a firm with a good product to pay for the cost of the signal 
D) a Firm with a good product reaps a relatively small benefit from atvertising

Question 16

Efficiency wages increase the cost of shirking.

Accepted Answer

A) True 
 B)False

Question 17

The Condorcet paradox reinforces the notion that majority rule ensures transitive preferences for society.

Accepted Answer

A) True 
 B)False

Question 18

When a uniformed party takes action to reveal private information, this action is called:

Accepted Answer

A)  screening 
B)  signalling 
C)  adverse selection 
D)  information asymmetry 
A)  screening 
B)  signalling 
C)  adverse selection 
D)  information asymmetry

Question 19

For an action to be an effective signal:

Accepted Answer

A) it must be costly, and less costly to the person with the higher-quality product 
B) it must be costly, and less beneficial to the person with the higher-quality product 
C) it cannot be costly 
D) none of the above 
A) it must be costly, and less costly to the person with the higher-quality product 
B) it must be costly, and less beneficial to the person with the higher-quality product 
C) it cannot be costly 
D) none of the above

Question 20

Which of the following situations is likely to lead to moral hazard?
(i) a self-employed tradesperson working on her own job site
(ii) the government requiring all insurers to offer flood insurance
(iii) laws requiring all drivers to wear seatbelts

Accepted Answer

A)  (1) any 
B)  (ii) anly 
C)  (i) and (i) anly 
D)  (ii) and (ii) arly 
A)  (1) any 
B)  (ii) anly 
C)  (i) and (i) anly 
D)  (ii) and (ii) arly

Exam 23: Frontiers of Microeconomics

Gift-giving can be explained through:

Which of the following is an example of signalling? (i) department stores buying extra advertising space before an upcoming sale (ii) a student obtaining a university degree in philosophy (iii) wearing specific brands and styles of clothing out on a Saturday night

If signalling is applied to advertising:

Parties in a two-party political system tend to put forward similar policies because:

Education and advertising are two examples of:

The median voter theorem can:

Arrow's impossibility theorem is named after the:

In the context of a voting system, unanimity means that:

The median voter is:

Adverse selection is a problem that arises in markets where the seller knows more about the attributes of the good being sold than the buyer does.

The problem of asymmetric information is absent in the moral hazard problem.

One implication of the lemons problem is that many people have an incentive to buy vehicles in the used car market.

If signalling is applied to advertising:

Efficiency wages increase the cost of shirking.

The Condorcet paradox reinforces the notion that majority rule ensures transitive preferences for society.

When a uniformed party takes action to reveal private information, this action is called:

For an action to be an effective signal:

Which of the following situations is likely to lead to moral hazard? (i) a self-employed tradesperson working on her own job site (ii) the government requiring all insurers to offer flood insurance (iii) laws requiring all drivers to wear seatbelts

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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