Question 1

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 2

In the case where landlords require tenants to pay security deposits:

Accepted Answer

A) the landlord is the agent and the tenant is the principal 
B) the landlord is the principal and the tenant is the agent 
C) both the landlord and the tenant are agents 
D) both the landlord and the tenant are principals 
A) the landlord is the agent and the tenant is the principal 
B) the landlord is the principal and the tenant is the agent 
C) both the landlord and the tenant are agents 
D) both the landlord and the tenant are principals

Question 3

The lack of caution exhibited by individuals and families who are privately insured is an example of moral hazard.

Accepted Answer

A) True 
 B)False

Question 4

In the context of a voting system, independence of irrelevant alternatives means that the ranking between any two outcomes A and B should not depend on whether some third outcome C is also available.

Accepted Answer

A) True 
 B)False

Question 5

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 6

Screening is an action taken by an uninformed party to induce an informed party to reveal information.

Accepted Answer

A) True 
 B)False

Question 7

Economists tend to:

Accepted Answer

A) try to expand their understanding of human behaviour and society 
B) ignore the workings of political institutions 
C) tend to assume no hidden actions or characteristics when analysing insurance, labour and used car markets 
D) all of the above 
A) try to expand their understanding of human behaviour and society 
B) ignore the workings of political institutions 
C) tend to assume no hidden actions or characteristics when analysing insurance, labour and used car markets 
D) all of the above

Question 8

Signalling refers to actions taken by an informed party for the purpose of credibly revealing their private information.

Accepted Answer

A) True 
 B)False

Question 9

A difference in access to relevant knowledge is called:

Accepted Answer

A) an information symmetry 
B) an information asymmetry 
C) signalling 
D) screening 
A) an information symmetry 
B) an information asymmetry 
C) signalling 
D) screening

Question 10

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 A and 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 A and 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 11

Arrow identified unanimity and transitivity as desirable properties for a voting system.

Accepted Answer

A) True 
 B)False

Question 12

Behavioural economics:

Accepted Answer

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

Question 13

What is moral hazard and how might it manifest in an employment relationship? What can an employer do to reduce the problem of moral hazard?

Accepted Answer

.
Moral hazard occurs when an agent perf

Question 14

Behavioural economists argue that:

Accepted Answer

A) people are rational maximisers 
B) consumers always choose the best possible course of action 
C) people are flexible and change their beliefs in response to new evidence 
D) people largely make decisions that are merely good enough 
A) people are rational maximisers 
B) consumers always choose the best possible course of action 
C) people are flexible and change their beliefs in response to new evidence 
D) people largely make decisions that are merely good enough

Question 15

If signalling is applied to advertising:

Accepted Answer

A) not all firms have the same incentive to advertise 
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 advertising 
A) not all firms have the same incentive to advertise 
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 advertising

Question 16

Employers can reduce the incentive of imperfectly monitored workers to shirk by:

Accepted Answer

A) better monitoring 
B) lower wages 
C) avoiding year-end bonuses 
D) none of the above 
A) better monitoring 
B) lower wages 
C) avoiding year-end bonuses 
D) none of the above

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

Private markets sometimes deal with asymmetric information through signalling and screening.

Accepted Answer

A) True 
 B)False

Question 19

A difference in access to relevant knowledge is called information symmetry.

Accepted Answer

A) True 
 B)False

Question 20

The Condorcet paradox illustrates how:

Accepted Answer

A) choice of voting order has no impact on the outcome of a democratic election 
B) majority voting by itself can tell us what outcome of society really wants 
C) choice of voting order can have an impact on the outcome of a democratic election 
D) aggregating individual preferences into preferences for society as a whole is relatively straightforward. 
A) choice of voting order has no impact on the outcome of a democratic election 
B) majority voting by itself can tell us what outcome of society really wants 
C) choice of voting order can have an impact on the outcome of a democratic election 
D) aggregating individual preferences into preferences for society as a whole is relatively straightforward.

Exam 23: Frontiers of Microeconomics

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

In the case where landlords require tenants to pay security deposits:

The lack of caution exhibited by individuals and families who are privately insured is an example of moral hazard.

In the context of a voting system, independence of irrelevant alternatives means that the ranking between any two outcomes A and B should not depend on whether some third outcome C is also available.

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

Screening is an action taken by an uninformed party to induce an informed party to reveal information.

Economists tend to:

Signalling refers to actions taken by an informed party for the purpose of credibly revealing their private information.

A difference in access to relevant knowledge is called:

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

Arrow identified unanimity and transitivity as desirable properties for a voting system.

Behavioural economics:

What is moral hazard and how might it manifest in an employment relationship? What can an employer do to reduce the problem of moral hazard?

Behavioural economists argue that:

If signalling is applied to advertising:

Employers can reduce the incentive of imperfectly monitored workers to shirk by:

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

Private markets sometimes deal with asymmetric information through signalling and screening.

A difference in access to relevant knowledge is called information symmetry.

The Condorcet paradox illustrates how:

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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