Question 1

Economists:

Accepted Answer

A) have always suggested that people are rational maximisers, not satisficers 
B) use basic psychological insights in the field of behavioural economics 
C) generally argue that people do not weigh the costs and benefits of different courses of action 
D) assume individuals and firms do not face constraints in the market 
A) have always suggested that people are rational maximisers, not satisficers 
B) use basic psychological insights in the field of behavioural economics 
C) generally argue that people do not weigh the costs and benefits of different courses of action 
D) assume individuals and firms do not face constraints in the market

Question 2

The incentive of imperfectly monitored workers to shirk can be reduced by:

Accepted Answer

A) higher levels of monitoring and offering year-end bonuses 
B) higher levels of monitoring and lower wages 
C) lower levels of monitoring and offering year-end bonuses 
D) lower levels of monitoring and lower wages 
A) higher levels of monitoring and offering year-end bonuses 
B) higher levels of monitoring and lower wages 
C) lower levels of monitoring and offering year-end bonuses 
D) lower levels of monitoring and lower wages

Question 3

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 4

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 5

Adverse selection is a problem that arises in markets where:

Accepted Answer

A) the seller knows more about the attributes of the good being sold than the buyer does 
B) the buyer knows more about the attributes of the good being sold than the seller does 
C) only used cars are bought and sold 
D) both buyers and sellers have the same knowledge about the attributes of the good 
A) the seller knows more about the attributes of the good being sold than the buyer does 
B) the buyer knows more about the attributes of the good being sold than the seller does 
C) only used cars are bought and sold 
D) both buyers and sellers have the same knowledge about the attributes of the good

Question 6

Loss aversion means that commitment strategies that generate potential losses are more likely to change behaviour than strategies that generate the equivalent money gain.

Accepted Answer

A) True 
 B)False

Question 7

Gift-giving can be explained through:

Accepted Answer

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

Question 8

It is often difficult for a customer to know the quality of a 3-D television. If a television manufacturer advertises its 3-D televisions then:

Accepted Answer

A) this is a costless action that fails to signal the 3-D television is a good product 
B) this is a costless action that succeeds in signalling that the 3-D television is a good product 
C) this is a costly action that succeeds in signalling that the 3-D television is a good product 
D) this is a costly action that fails to signal the 3-D television is a good product 
A) this is a costless action that fails to signal the 3-D television is a good product 
B) this is a costless action that succeeds in signalling that the 3-D television is a good product 
C) this is a costly action that succeeds in signalling that the 3-D television is a good product 
D) this is a costly action that fails to signal the 3-D television is a good product

Question 9

Arrow identified which of the following as desirable properties for a voting system? (i) unanimity and transitivity
(ii) independence of irrelevant alternatives
(iii) a benevolent dictator

Accepted Answer

A) (i) only 
B) (i) an (ii) 
C) (i) and (iii) 
D) (ii) and (iii) 
A) (i) only 
B) (i) an (ii) 
C) (i) and (iii) 
D) (ii) and (iii)

Question 10

In insurance markets, buyers with:

Accepted Answer

A) low risk may choose to be uninsured, because the policies they are offered reflect their true characteristics 
B) low risk may choose to be insured, because the policies they are offered fail to reflect their true characteristics 
C) low risk may choose to be uninsured, because the policies they are offered fail to reflect their true characteristics 
D) high risk may choose to be insured, because the policies they are offered reflect their true characteristics 
A) low risk may choose to be uninsured, because the policies they are offered reflect their true characteristics 
B) low risk may choose to be insured, because the policies they are offered fail to reflect their true characteristics 
C) low risk may choose to be uninsured, because the policies they are offered fail to reflect their true characteristics 
D) high risk may choose to be insured, because the policies they are offered reflect their true characteristics

Question 11

How might a car insurance company screen drivers for risky behaviour?

Accepted Answer

.
A firm would want to charge a low prem

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

What is adverse selection, and how is it applied to the used car market?

Accepted Answer

.
Adverse selection is a problem that ar

Question 14

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 15

Given asymmetric information, car insurance companies might encourage risky drivers to identify themselves by offering a high-premium policy without a deductible.

Accepted Answer

A) True 
 B)False

Question 16

When applied to the labour market, the adverse selection model suggests that:

Accepted Answer

A) relatively talented workers are more likely to remain with a particular firm if the firm cuts the wages it pays 
B) firms have perfect knowledge about the ability of workers 
C) a firm may choose to pay an above-equilibrium wage to attract a better mix of workers 
D) all workers have identical abilities 
A) relatively talented workers are more likely to remain with a particular firm if the firm cuts the wages it pays 
B) firms have perfect knowledge about the ability of workers 
C) a firm may choose to pay an above-equilibrium wage to attract a better mix of workers 
D) all workers have identical abilities

Question 17

An implication of asymmetric information in the insurance market is that:

Accepted Answer

A) people in average health may be discouraged from purchasing health insurance 
B) the price of health insurance may reflect the costs of a healthier-than-average person 
C) people with greater hidden health problems have an incentive to signal their current state of health to health insurance companies 
D) insurance companies have perfect knowledge about the health problems of those who purchase insurance 
A) people in average health may be discouraged from purchasing health insurance 
B) the price of health insurance may reflect the costs of a healthier-than-average person 
C) people with greater hidden health problems have an incentive to signal their current state of health to health insurance companies 
D) insurance companies have perfect knowledge about the health problems of those who purchase insurance

Question 18

The classic example of adverse selection is the market for:

Accepted Answer

A) oranges 
B) child safety equipment 
C) used cars 
D) crime novels 
A) oranges 
B) child safety equipment 
C) used cars 
D) crime novels

Question 19

How do markets respond to problems of asymmetric information?

Accepted Answer

1. Signalling refers to actions taken by

Question 20

According to the median voter theorem, majority rule will produce the outcome:

Accepted Answer

A) least preferred by the voter exactly in the middle of a distribution 
B) that represents everyone's preferences equally 
C) most preferred by the voter at an extreme end of the distribution 
D) most preferred by the voter exactly in the middle of a distribution 
A) least preferred by the voter exactly in the middle of a distribution 
B) that represents everyone's preferences equally 
C) most preferred by the voter at an extreme end of the distribution 
D) most preferred by the voter exactly in the middle of a distribution

Exam 23: Frontiers of Microeconomics

Economists:

The incentive of imperfectly monitored workers to shirk can be reduced by:

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.

If signalling is applied to advertising:

Adverse selection is a problem that arises in markets where:

Loss aversion means that commitment strategies that generate potential losses are more likely to change behaviour than strategies that generate the equivalent money gain.

Gift-giving can be explained through:

It is often difficult for a customer to know the quality of a 3-D television. If a television manufacturer advertises its 3-D televisions then:

Arrow identified which of the following as desirable properties for a voting system? (i) unanimity and transitivity (ii) independence of irrelevant alternatives (iii) a benevolent dictator

In insurance markets, buyers with:

How might a car insurance company screen drivers for risky behaviour?

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

What is adverse selection, and how is it applied to the used car market?

Education and advertising are two examples of:

Given asymmetric information, car insurance companies might encourage risky drivers to identify themselves by offering a high-premium policy without a deductible.

When applied to the labour market, the adverse selection model suggests that:

An implication of asymmetric information in the insurance market is that:

The classic example of adverse selection is the market for:

How do markets respond to problems of asymmetric information?

According to the median voter theorem, majority rule will produce the outcome:

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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