Question 1

Which of the following statements captures the meaning of transitivity of preferences?

Accepted Answer

A) If A is preferred to B, then B is less preferred than a. 
B) If A is preferred to B, and B is preferred to C, then A is preferred to C. 
C) If A is preferred to B and B is preferred to C, then the preference for A over B is stronger than the preference for B over C. 
D) If A is preferred to C, then there exists B such that A is preferred to B and B is preferred to C. 
A) If A is preferred to B, then B is less preferred than a. 
B) If A is preferred to B, and B is preferred to C, then A is preferred to C. 
C) If A is preferred to B and B is preferred to C, then the preference for A over B is stronger than the preference for B over C. 
D) If A is preferred to C, then there exists B such that A is preferred to B and B is preferred to C.

Question 2

Scenario 22-4
Consider the following voting rules:
   
Assume the following voter preferences for a voting district:
  
-Refer to Scenario 22-4.Which candidate wins under pairwise majority voting if first Jones is put up against Smith,then the winner takes on Thomas,and finally the winner of that election takes on Brown?

Accepted Answer

A) Brown 
B) Jones 
C) Smith 
D) Thomas 
A) Brown 
B) Jones 
C) Smith 
D) Thomas

Question 3

An implication of the median voter theorem is that

Accepted Answer

A) minority views and majority views are given equal weight. 
B) platforms of the major political parties will not differ greatly. 
C) the logic of democracy is fundamentally flawed. 
D) behavioral economics plays a signficant role in voting outcomes. 
A) minority views and majority views are given equal weight. 
B) platforms of the major political parties will not differ greatly. 
C) the logic of democracy is fundamentally flawed. 
D) behavioral economics plays a signficant role in voting outcomes.

Question 4

The Arrow impossibility theorem states that

Accepted Answer

A) there is no tendency for a change unless some underlying condition changes. 
B) the equilibrium government policy is the one favored by the median voter. 
C) people's votes are generally irrelevant. 
D) the results of voting can be inconsistent even if all voters make consistent choices. 
A) there is no tendency for a change unless some underlying condition changes. 
B) the equilibrium government policy is the one favored by the median voter. 
C) people's votes are generally irrelevant. 
D) the results of voting can be inconsistent even if all voters make consistent choices.

Question 5

Carlos,who knows nothing about construction,paid Joe to remodel a room in his house.Two years later,one wall in the remodeled room crumbled because Joe used poor-quality materials.This illustrates which economic problem?

Accepted Answer

A) Adverse selection 
B) Screening 
C) Moral hazard 
D) Signaling 
A) Adverse selection 
B) Screening 
C) Moral hazard 
D) Signaling

Question 6

In economics,a difference in access to relevant knowledge is called a behavioral asymmetry.

Accepted Answer

A) True 
 B)False

Question 7

Kenneth Arrow proved that the voting system that satisfied all of the properties of his "perfect" voting system was

Accepted Answer

A) one in which a single person (a "dictator") imposes his preferences on everyone else. 
B) pairwise majority voting. 
C) majority voting that is not pairwise. 
D) None of the above is correct. Arrow proved that no voting system can satisfy all of the properties of his "perfect" system. 
A) one in which a single person (a "dictator") imposes his preferences on everyone else. 
B) pairwise majority voting. 
C) majority voting that is not pairwise. 
D) None of the above is correct. Arrow proved that no voting system can satisfy all of the properties of his "perfect" system.

Question 8

The assertion that the median voter is "king" refers directly to the result established by the

Accepted Answer

A) Arrow impossibility theorem. 
B) Condorcet paradox. 
C) median voter theorem. 
D) Borda mechanism. 
A) Arrow impossibility theorem. 
B) Condorcet paradox. 
C) median voter theorem. 
D) Borda mechanism.

Question 9

Scenario 22-4
Consider the following voting rules:
   
Assume the following voter preferences for a voting district:
  
-Refer to Scenario 22-4.The information above ranks the voter preferences for a voting district.Which candidate wins under plurality rule?

Accepted Answer

A) Brown 
B) Jones 
C) Smith 
D) Thomas 
A) Brown 
B) Jones 
C) Smith 
D) Thomas

Question 10

Table 22-2
The citizens of Paradoxopolis will decide whether to build a new school, build a new park, or build a new road. 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 22-2.Which of the following statements is correct regarding the Condorcet paradox and the results of pairwise voting in Paradoxopolis?

Accepted Answer

A) The paradox implies that pairwise voting never produces transitive preferences, and so the voting in Paradoxopolis fails to produce transitive preferences. 
B) The paradox implies that pairwise voting sometimes (but not always) produces transitive preferences, and the voting in Paradoxopolis does produce transitive preferences. 
C) The paradox implies that pairwise voting sometimes (but not always) fails to produce transitive preferences, and the voting in Paradoxopolis fails to produce transitive preferences. 
D) The paradox does not apply to the case at hand, because the preferences of Type 3 voters are not individually transitive. 
A) The paradox implies that pairwise voting never produces transitive preferences, and so the voting in Paradoxopolis fails to produce transitive preferences. 
B) The paradox implies that pairwise voting sometimes (but not always) produces transitive preferences, and the voting in Paradoxopolis does produce transitive preferences. 
C) The paradox implies that pairwise voting sometimes (but not always) fails to produce transitive preferences, and the voting in Paradoxopolis fails to produce transitive preferences. 
D) The paradox does not apply to the case at hand, because the preferences of Type 3 voters are not individually transitive.

Question 11

Betty knows that she needs to save 20% of her annual income for retirement.However,she spends 90% of her income each year.This is an indication that Betty's preferences are

Accepted Answer

A) irrational. 
B) inconsistent over time. 
C) satisficing rather than maximizing. 
D) undefined. 
A) irrational. 
B) inconsistent over time. 
C) satisficing rather than maximizing. 
D) undefined.

Question 12

Which of the following is a plausible explanation for a firm paying above-equilibrium wages to its workers?

Accepted Answer

A) It increases the probability that a worker who shirks will be caught. 
B) It discourages workers from shirking out of fear of losing their high-paying job. 
C) The Condorcet Paradox suggests that paying high wages will result in greater effort by employees. 
D) By paying a high wage, employers solve this adverse selection problem and motivate the employees to work harder. 
A) It increases the probability that a worker who shirks will be caught. 
B) It discourages workers from shirking out of fear of losing their high-paying job. 
C) The Condorcet Paradox suggests that paying high wages will result in greater effort by employees. 
D) By paying a high wage, employers solve this adverse selection problem and motivate the employees to work harder.

Question 13

Scenario 22-2
Five voters must choose from among four options: W, X, Y, or Z. Each voter's preferences are summarized in the table below. Options higher in the table are more preferred by the voter.
  
-Refer to Scenario 22-2.If the vote were conducted according to a modified Borda count system where each person's first choice receives 10 points,second choice 5 points,third choice 3 points and fourth choice 1 point,the result would be

Accepted Answer

A) that W would win. 
B) that X would win. 
C) that Y would win. 
D) that Z would win. 
A) that W would win. 
B) that X would win. 
C) that Y would win. 
D) that Z would win.

Question 14

The Condorcet paradox implies that the order in which items are voted on under majority rule is unimportant.

Accepted Answer

A) True 
 B)False

Question 15

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 16

Suppose that in a Borda count election,outcome X is preferred to outcome Y,and outcome Y is preferred to outcome Z,when outcomes X,Y,and Z are all available options.When Y is removed as an option,however,outcome Z is preferred to outcome X.This would violate Arrow's assumption that voting systems should satisfy

Accepted Answer

A) unanimity. 
B) transitivity. 
C) the independence of irrelevant alternatives. 
D) no dictators. 
A) unanimity. 
B) transitivity. 
C) the independence of irrelevant alternatives. 
D) no dictators.

Question 17

Because people with hidden health problems are more likely to buy health insurance than are other people,

Accepted Answer

A) the price of health insurance reflects the costs of a sicker-than-average person. 
B) the price of health insurance is too low, relative to the socially-optimal price. 
C) people in average health may be encouraged to buy too much health insurance, relative to the socially-optimal quantity. 
D) the Condorcet Paradox suggests that people who are sicker than average will ultimately buy more health insurance. 
A) the price of health insurance reflects the costs of a sicker-than-average person. 
B) the price of health insurance is too low, relative to the socially-optimal price. 
C) people in average health may be encouraged to buy too much health insurance, relative to the socially-optimal quantity. 
D) the Condorcet Paradox suggests that people who are sicker than average will ultimately buy more health insurance.

Question 18

Table 22-2
The citizens of Paradoxopolis will decide whether to build a new school, build a new park, or build a new road. 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 22-2.If (1)the first vote pits "school" against "road," and (2)the second vote pits "park" against the winner of the first vote,then the outcome is as follows:

Accepted Answer

A) "School" wins the first vote and "school" wins the second vote, so they build a school. 
B) "School" wins the first vote and "park" wins the second vote, so they build a park. 
C) "Road" wins the first vote and "road" wins the second vote, so they build a road. 
D) "Road" wins the first vote and "park" wins the second vote, so they build a park. 
A) "School" wins the first vote and "school" wins the second vote, so they build a school. 
B) "School" wins the first vote and "park" wins the second vote, so they build a park. 
C) "Road" wins the first vote and "road" wins the second vote, so they build a road. 
D) "Road" wins the first vote and "park" wins the second vote, so they build a park.

Question 19

One implication of the Condorcet paradox is

Accepted Answer

A) that the order in which things are voted on can affect the result. 
B) that the order in which things are voted on is irrelevant. 
C) that you do not want to be in charge of arranging which items are voted upon first. 
D) that when there are only two items being voted on the order does matter. 
A) that the order in which things are voted on can affect the result. 
B) that the order in which things are voted on is irrelevant. 
C) that you do not want to be in charge of arranging which items are voted upon first. 
D) that when there are only two items being voted on the order does matter.

Question 20

Moral hazard is a problem in which it is difficult to observe a

Accepted Answer

A) hidden characteristic. 
B) hidden action. 
C) hidden budget constraint. 
D) hidden set of preferences. 
A) hidden characteristic. 
B) hidden action. 
C) hidden budget constraint. 
D) hidden set of preferences.

Exam 22: Frontiers of Microeconomics

Which of the following statements captures the meaning of transitivity of preferences?

An implication of the median voter theorem is that

The Arrow impossibility theorem states that

Carlos,who knows nothing about construction,paid Joe to remodel a room in his house.Two years later,one wall in the remodeled room crumbled because Joe used poor-quality materials.This illustrates which economic problem?

In economics,a difference in access to relevant knowledge is called a behavioral asymmetry.

Kenneth Arrow proved that the voting system that satisfied all of the properties of his "perfect" voting system was

The assertion that the median voter is "king" refers directly to the result established by the

Scenario 22-4 Consider the following voting rules: Assume the following voter preferences for a voting district: -Refer to Scenario 22-4.The information above ranks the voter preferences for a voting district.Which candidate wins under plurality rule?

Betty knows that she needs to save 20% of her annual income for retirement.However,she spends 90% of her income each year.This is an indication that Betty's preferences are

Which of the following is a plausible explanation for a firm paying above-equilibrium wages to its workers?

The Condorcet paradox implies that the order in which items are voted on under majority rule is unimportant.

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

Because people with hidden health problems are more likely to buy health insurance than are other people,

One implication of the Condorcet paradox is

Moral hazard is a problem in which it is difficult to observe a

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

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

Oligopoly

Monopolistic Competition

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

The Basic Tools of Finance

Unemployment

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 Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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