Question 1

Which of the following relationships involves asymmetric information?

Accepted Answer

A)  Patients can look up information regarding certain prescription drugs giving them the same information as their doctors. 
B)  Consumer Reports allows customers of DVD players to know as much about the quality of various players as the store salesperson. 
C)  Car Fax allows car buyers to obtain used-vehicle histories providing them with the same information as the dealership salesperson. 
D)  The batter in a baseball game must guess whether the pitcher is going to throw a fastball,curveball,or change-up. 
A)  Patients can look up information regarding certain prescription drugs giving them the same information as their doctors. 
B)  Consumer Reports allows customers of DVD players to know as much about the quality of various players as the store salesperson. 
C)  Car Fax allows car buyers to obtain used-vehicle histories providing them with the same information as the dealership salesperson. 
D)  The batter in a baseball game must guess whether the pitcher is going to throw a fastball,curveball,or change-up.

Question 2

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

Accepted Answer

A)  The employer pays his workers wages that are unusually high for the industry and region. 
B)  The employer has voluntarily removed video cameras from the factory floor. 
C)  The employer has discontinued the practice of giving his employees' year-end bonuses. 
D)  Both A and B are correct. 
A)  The employer pays his workers wages that are unusually high for the industry and region. 
B)  The employer has voluntarily removed video cameras from the factory floor. 
C)  The employer has discontinued the practice of giving his employees' year-end bonuses. 
D)  Both A and B are correct.

Question 3

A "satisficer" is a person who

Accepted Answer

A)  always chooses the best course of action. 
B)  often chooses the worst course of action. 
C)  makes decisions that are merely good enough. 
D)  studies both economics and psychology. 
A)  always chooses the best course of action. 
B)  often chooses the worst course of action. 
C)  makes decisions that are merely good enough. 
D)  studies both economics and psychology.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Evidence points to the fact that,in the real world,people appear to care about fairness

Accepted Answer

A)  only when it coincides with their own self-interest. 
B)  only when it coincides with their determination to be consistent over time. 
C)  even when it does not coincide with their own self-interest. 
D)  not at all. 
A)  only when it coincides with their own self-interest. 
B)  only when it coincides with their determination to be consistent over time. 
C)  even when it does not coincide with their own self-interest. 
D)  not at all.

Question 6

In American politics,we often observe that during a campaign,the Democratic and Republican positions on many issues are similar,which illustrates

Accepted Answer

A)  Arrow's impossibility theorem. 
B)  the Condorcet paradox. 
C)  a Borda count. 
D)  the median voter theorem. 
A)  Arrow's impossibility theorem. 
B)  the Condorcet paradox. 
C)  a Borda count. 
D)  the median voter theorem.

Question 7

Experiments show that when real people play the ultimatum game,starting with $100,

Accepted Answer

A)  Player A usually proposes giving Player B more than $50. 
B)  Player B usually accepts Player A's proposal if Player A proposes giving Player B $30 or $40. 
C)  players show themselves to be rational wealth-maximizers. 
D)  Both B and C are correct. 
A)  Player A usually proposes giving Player B more than $50. 
B)  Player B usually accepts Player A's proposal if Player A proposes giving Player B $30 or $40. 
C)  players show themselves to be rational wealth-maximizers. 
D)  Both B and C are correct.

Question 8

Explain what is meant by "asymmetric information." Identify and explain the two basic types of problems that arise when there is asymmetric information.

Accepted Answer

Asymmetric information is present when t

Question 9

Severe adverse-selection problems may result in

Accepted Answer

A)  too few good used cars being offered for sale. 
B)  wages that are too low relative to equilibrium levels. 
C)  too many good drivers buying too much automobile insurance. 
D)  people with average health buying too much health insurance. 
A)  too few good used cars being offered for sale. 
B)  wages that are too low relative to equilibrium levels. 
C)  too many good drivers buying too much automobile insurance. 
D)  people with average health buying too much health insurance.

Question 10

An insurance company that writes automobile policies tries to separate safe drivers from risky drivers by offering policies that feature different deductibles and different premiums.This practice is best described as an example of

Accepted Answer

A)  screening. 
B)  behavioral economics. 
C)  the Condorcet Paradox. 
D)  signaling. 
A)  screening. 
B)  behavioral economics. 
C)  the Condorcet Paradox. 
D)  signaling.

Question 11

Scenario 22-1
At issue in a particular city vote is how much to spend,per person,on road repair next year.Among the 10,000 voters,1,500 prefer to spend $300 per person,but no more;2,800 prefer to spend $450 per person,but no more;3,500 prefer to spend $800 per person,but no more;and 2,200 prefer to spend $1500 per person,but no more.
-Refer to Scenario 22-1.If there is a vote on whether to spend $800 per person or $1100 per person,the median voter will vote to spend

Accepted Answer

A)  $800 per person and the voting outcome will be $800 per person. 
B)  $800 per person and the voting outcome will be $1100 per person. 
C)  $1100 per person and the voting outcome will be $800 per person. 
D)  $1100 per person and the voting outcome will be $1100 per person. 
A)  $800 per person and the voting outcome will be $800 per person. 
B)  $800 per person and the voting outcome will be $1100 per person. 
C)  $1100 per person and the voting outcome will be $800 per person. 
D)  $1100 per person and the voting outcome will be $1100 per person.

Question 12

Which of the following is an example of an adverse selection problem?

Accepted Answer

A)  A customer purchases four apples,two of which are inedible. 
B)  A card shop puts its Halloween merchandise on sale on November 1st. 
C)  A young worker is fired after she is late for work three times in one month. 
D)  A man whose father had a heart attack wants to increase his life insurance coverage. 
A)  A customer purchases four apples,two of which are inedible. 
B)  A card shop puts its Halloween merchandise on sale on November 1st. 
C)  A young worker is fired after she is late for work three times in one month. 
D)  A man whose father had a heart attack wants to increase his life insurance coverage.

Question 13

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?

Accepted Answer

A)  Volvo drivers are not willing to take risks that they would take in another,less safe car.Driving a Volvo leads to a propensity to run stop signs. 
B)  Volvo drivers are not willing to take risks that they would take in another,less safe car.Driving a Volvo reduces the propensity to run stop signs. 
C)  Volvo drivers are willing to take risks that they would not take in another,less safe car.Driving a Volvo reduces the propensity to run stop signs. 
D)  Volvo drivers are willing to take risks that they would not take in another,less safe car.Driving a Volvo leads to a propensity to run stop signs. 
A)  Volvo drivers are not willing to take risks that they would take in another,less safe car.Driving a Volvo leads to a propensity to run stop signs. 
B)  Volvo drivers are not willing to take risks that they would take in another,less safe car.Driving a Volvo reduces the propensity to run stop signs. 
C)  Volvo drivers are willing to take risks that they would not take in another,less safe car.Driving a Volvo reduces the propensity to run stop signs. 
D)  Volvo drivers are willing to take risks that they would not take in another,less safe car.Driving a Volvo leads to a propensity to run stop signs.

Question 14

Conventional economic theory suggests that in the ultimatum game,the player proposing a split of $100 will propose that she get $99 and that the other player get $1.By the same reasoning,if the amount to be split is $200,the player proposing the split will propose that she gets

Accepted Answer

A)  $100 and that the other player gets $100. 
B)  $198 and that the other player gets $2. 
C)  $199 and that the other player gets $1. 
D)  $200 and that the other player gets nothing. 
A)  $100 and that the other player gets $100. 
B)  $198 and that the other player gets $2. 
C)  $199 and that the other player gets $1. 
D)  $200 and that the other player gets nothing.

Question 15

Majority rule will produce the outcome most preferred by the median voter,as demonstrated by the

Accepted Answer

A)  Arrow impossibility theorem. 
B)  Condorcet paradox. 
C)  pairwise voting proposition. 
D)  median voter theorem. 
A)  Arrow impossibility theorem. 
B)  Condorcet paradox. 
C)  pairwise voting proposition. 
D)  median voter theorem.

Question 16

Majority rule will produce the outcome most preferred by the median voter.

Accepted Answer

A) True 
 B)False

Question 17

Steve is planning to sell his home.In preparation for the sale,he paints all of the ceilings in his house to cover up water stains from his leaking roof so that potential buyers will be unaware of this problem.This is an example of

Accepted Answer

A)  moral hazard. 
B)  screening. 
C)  adverse selection. 
D)  the principal-agent problem. 
A)  moral hazard. 
B)  screening. 
C)  adverse selection. 
D)  the principal-agent problem.

Question 18

Employers can try to overcome the moral-hazard problem involving their employees by

Accepted Answer

A)  paying their employees more often. 
B)  paying their employees below-equilibrium wages since the employees will likely shirk some of their responsibilities. 
C)  better monitoring their employees' work efforts. 
D)  requiring their employees to take a pre-employment work effort test. 
A)  paying their employees more often. 
B)  paying their employees below-equilibrium wages since the employees will likely shirk some of their responsibilities. 
C)  better monitoring their employees' work efforts. 
D)  requiring their employees to take a pre-employment work effort test.

Question 19

The median voter

Accepted Answer

A)  is the voter exactly in the middle of the distribution. 
B)  is the voter whose preferred outcome beats any other proposal in a two-way race. 
C)  always has more than half the votes on his side in a two-way race. 
D)  All of the above are correct. 
A)  is the voter exactly in the middle of the distribution. 
B)  is the voter whose preferred outcome beats any other proposal in a two-way race. 
C)  always has more than half the votes on his side in a two-way race. 
D)  All of the above are correct.

Question 20

The median voter's preferred outcome is the same as the

Accepted Answer

A)  average preferred outcome. 
B)  outcome preferred by the greatest number of voters. 
C)  outcome produced by majority rule. 
D)  outcome preferred by Arrow's "perfect" voter. 
A)  average preferred outcome. 
B)  outcome preferred by the greatest number of voters. 
C)  outcome produced by majority rule. 
D)  outcome preferred by Arrow's "perfect" voter.

Exam 22: Frontiers of Microeconomics

Which of the following relationships involves asymmetric information?

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

A "satisficer" is a person who

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

Evidence points to the fact that,in the real world,people appear to care about fairness

In American politics,we often observe that during a campaign,the Democratic and Republican positions on many issues are similar,which illustrates

Experiments show that when real people play the ultimatum game,starting with $100,

Explain what is meant by "asymmetric information." Identify and explain the two basic types of problems that arise when there is asymmetric information.

Severe adverse-selection problems may result in

An insurance company that writes automobile policies tries to separate safe drivers from risky drivers by offering policies that feature different deductibles and different premiums.This practice is best described as an example of

Which of the following is an example of an adverse selection problem?

Conventional economic theory suggests that in the ultimatum game,the player proposing a split of $100 will propose that she get $99 and that the other player get $1.By the same reasoning,if the amount to be split is $200,the player proposing the split will propose that she gets

Majority rule will produce the outcome most preferred by the median voter,as demonstrated by the

Majority rule will produce the outcome most preferred by the median voter.

Steve is planning to sell his home.In preparation for the sale,he paints all of the ceilings in his house to cover up water stains from his leaking roof so that potential buyers will be unaware of this problem.This is an example of

Employers can try to overcome the moral-hazard problem involving their employees by

The median voter

The median voter's preferred outcome is the same as the

Ten Principles of 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

Monopolistic Competition

Oligopoly

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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