Exam 22: Frontiers of Microeconomics

Brian and Andrea are playing the ultimatum game,starting with $100.The coin flip results in Brian being the one to propose a division of the $100.Brian proposes that he gets $99 and Andrea gets $1.

A firm with a very good product

Arrow's impossibility theorem shows that it is impossible to find a better voting system than pairwise majority voting.

According to the median voter theorem,majority rule will produce an outcome that is inconsistent with transitive preferences.

In the worker-employer relationship,"inappropriate" or "immoral" behavior

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 "park," and (2)the second vote pits "road" against the winner of the first vote,then the outcome is as follows:

Valerie prefers A to B and she prefers B to C.If Valerie's preferences are transitive,then she prefers A to C.

How have insights from the field of psychology influenced the thinking of economists in recent years?

The ultimatum game reveals that

The problem that arises when one person performs a task on behalf of another person is called the lemons problem.

A radio story reported a study on the makes and models of cars that were observed going through intersections in the Washington,D.C.area without stopping at the stop signs.According to the story,Volvos were heavily overrepresented;the fraction of cars running stop signs that were Volvos was much greater than the fraction of Volvos in the total population of cars in the D.C.area.This is initially surprising because Volvo has built a reputation as an especially safe car that appeals to sensible,safety-conscious drivers.How is this observation best explained?

Tom owns a small business in Sioux Falls.He travels frequently,meeting with important customers,attending conferences,and the like.Tom hired Susan to work in the Sioux Falls office as the day-to-day general manager of the business.

Which of the following practices would indicate that an employer is trying to overcome a moral-hazard problem with his employees?

Suppose you are covered under health insurance or belong to a Health Maintenance Organization (HMO),and you are insured against all or most of the costs of visits to the doctor. As a result you are likely to make greater use of medical services of all kinds.This tendency of people with insurance to change their behavior in a way that leads to more claims against the insurance company is called

Table 22-4 -Refer to Table 22-4.The table shows the most preferred budget of 75 voters.In an election,each voter will select the budget closest to his or her most preferred budget.Which of the following statements regarding this information is true?

The traditional year-end bonus paid to workers

An implication of the median voter theorem is that,in a race between Republicans and Democrats,

Shawn buys automobile insurance from Safe-T Insurance Company.If Shawn avoids having an accident for three years,Safe-T will reduce the price he has to pay for his insurance.Nevertheless,he routinely drives fast and with reckless abandon.

The problem of moral hazard is a problem of hidden action.

Scenario 22-5 Three candidates, Fred, Barb, and William, are running for office. There are three voters in the upcoming election: Heather, Don, and Luanne. Heather prefers Barb over Fred and Fred over William. Don prefers William over Barb and Barb over Fred. Luanne prefers Fred over Barb and Barb over William. -Refer to Scenario 22-5.If the voters were given a choice of Fred versus William first,then the winner was in a second election versus Barb,who would win?