Question 1

The Condorcet paradox illustrates that majority voting by itself does not necessarily reveal what outcome society really wants.

Accepted Answer

A) True 
 B)False  True

Question 2

If signalling is applied to advertising:

Accepted Answer

A) a firm with a good product reaps a relatively large benefit from advertising 
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) firms with poor products can copy this signal easily 
A) a firm with a good product reaps a relatively large benefit from advertising 
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) firms with poor products can copy this signal easily A

Question 3

Insurance companies have perfect knowledge about the health problems of those who purchase insurance due to asymmetric information in the insurance market.

Accepted Answer

A) True 
 B)False  False

Question 4

What are the implications of the median voter theorem?

Accepted Answer

1. If two political parties are each try

Question 5

Private insurance companies cannot do anything to reduce the impact of the moral hazard problem.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements are implications of the lemons problem in the used car market? (i) many people avoid buying vehicles in this market
(ii) used cars have a market value much less than that of new cars
(iii) buyers are just as aware of a used car's defects as sellers

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 7

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

Accepted Answer

A) True 
 B)False

Question 8

Political economy:

Accepted Answer

A) tends to view human behaviour as less complex than that found in conventional economic 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 economic 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 9

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

Accepted Answer

A) True 
 B)False

Question 10

People frequently interpret evidence in a way that conforms to their own prior beliefs.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 13

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 14

If there is adverse selection in the health insurance market then this means that:

Accepted Answer

A) insurance companies can identify all the health problems facing its customers 
B) the price of health insurance may be greater than the costs of covering the average person's health risks 
C) people with severe but hidden health problems are less likely to buy health insurance than other people 
D) people in average health are encouraged to purchase health insurance 
A) insurance companies can identify all the health problems facing its customers 
B) the price of health insurance may be greater than the costs of covering the average person's health risks 
C) people with severe but hidden health problems are less likely to buy health insurance than other people 
D) people in average health are encouraged to purchase health insurance

Question 15

Signalling is motivated by the existence of asymmetric information.

Accepted Answer

A) True 
 B)False

Question 16

Arrow's impossibility theorem suggests that any voting system society adopts for aggregating the preferences of its members will be flawed.

Accepted Answer

A) True 
 B)False

Question 17

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) (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 18

If monitoring by a principal is imperfect, it is less likely that a moral hazard problem will arise.

Accepted Answer

A) True 
 B)False

Question 19

A worker who earns an above-equilibrium wage:

Accepted Answer

A) is less likely to shirk 
B) is more likely to shirk 
C) has little incentive to remain in his current job 
D) none of the above 
A) is less likely to shirk 
B) is more likely to shirk 
C) has little incentive to remain in his current job 
D) none of the above

Question 20

Behavioural economics suggest that people are frequently overconfident about their abilities.

Accepted Answer

A) True 
 B)False

Exam 23: Frontiers of Microeconomics

The Condorcet paradox illustrates that majority voting by itself does not necessarily reveal what outcome society really wants.

If signalling is applied to advertising:

Insurance companies have perfect knowledge about the health problems of those who purchase insurance due to asymmetric information in the insurance market.

What are the implications of the median voter theorem?

Private insurance companies cannot do anything to reduce the impact of the moral hazard problem.

Which of the following statements are implications of the lemons problem in the used car market? (i) many people avoid buying vehicles in this market (ii) used cars have a market value much less than that of new cars (iii) buyers are just as aware of a used car's defects as sellers

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

Political economy:

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

People frequently interpret evidence in a way that conforms to their own prior beliefs.

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

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

For an action to be an effective signal:

If there is adverse selection in the health insurance market then this means that:

Signalling is motivated by the existence of asymmetric information.

Arrow's impossibility theorem suggests that any voting system society adopts for aggregating the preferences of its members will be flawed.

If monitoring by a principal is imperfect, it is less likely that a moral hazard problem will arise.

A worker who earns an above-equilibrium wage:

Behavioural economics suggest that people are frequently overconfident about their abilities.

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

Business Strategy

Competition Policy

Monopolistic Competition

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

Five Debates Over Macroeconomic Policy

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