Question 1

Information asymmetry refers to

Accepted Answer

A)  the tendency of a person who is imperfectly monitored to engage in dishonest or otherwise undesirable behavior. 
B)  the tendency for the mix of unobserved attributes to become undesirable from the standpoint of an uninformed party. 
C)  an action taken by an informed party to reveal private information to an uninformed party. 
D)  a difference in access to relevant knowledge. 
A)  the tendency of a person who is imperfectly monitored to engage in dishonest or otherwise undesirable behavior. 
B)  the tendency for the mix of unobserved attributes to become undesirable from the standpoint of an uninformed party. 
C)  an action taken by an informed party to reveal private information to an uninformed party. 
D)  a difference in access to relevant knowledge.

Question 2

The fact that someone with a high risk of medical problems is likely to buy a large amount of health insurance is an example of

Accepted Answer

A)  adverse selection. 
B)  monitoring. 
C)  moral hazard. 
D)  screening. 
A)  adverse selection. 
B)  monitoring. 
C)  moral hazard. 
D)  screening.

Question 3

An example of asymmetric information is when a seller of a house knows more than the buyer about the house's condition.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is an example of signaling?

Accepted Answer

A)  John is considering the purchase of a used car.Before making the purchase he has the car checked by an auto mechanic. 
B)  Steve is applying for a new life insurance policy.Before writing the policy,the insurance company requires Steve to be examined by a doctor. 
C)  Traci is applying for a new job.Before hiring her,the firm requires Traci to take a drug test. 
D)  Ray is planning to ask for Honna's hand in marriage.Before asking her,he buys her a box of her favorite chocolates and takes her to dinner at her favorite restaurant. 
A)  John is considering the purchase of a used car.Before making the purchase he has the car checked by an auto mechanic. 
B)  Steve is applying for a new life insurance policy.Before writing the policy,the insurance company requires Steve to be examined by a doctor. 
C)  Traci is applying for a new job.Before hiring her,the firm requires Traci to take a drug test. 
D)  Ray is planning to ask for Honna's hand in marriage.Before asking her,he buys her a box of her favorite chocolates and takes her to dinner at her favorite restaurant.

Question 5

Table 22-7
  
-Refer to Table 22-7.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.Using this information,what is the most preferred budget of the median voter?

Accepted Answer

A)  $10 
B)  $20 
C)  $30 
D)  $40 
A)  $10 
B)  $20 
C)  $30 
D)  $40

Question 6

A firm with a very good product

Accepted Answer

A)  has a higher cost of signaling (advertising)than does a firm with an inferior product. 
B)  has more to gain by signaling (advertising)than does a firm with an inferior product. 
C)  does not need to signal (advertise)because the product's quality speaks for itself. 
D)  will signal (advertise)effectively if signaling is free. 
A)  has a higher cost of signaling (advertising)than does a firm with an inferior product. 
B)  has more to gain by signaling (advertising)than does a firm with an inferior product. 
C)  does not need to signal (advertise)because the product's quality speaks for itself. 
D)  will signal (advertise)effectively if signaling is free.

Question 7

Table 22-8
  
-Refer to Table 22-8.The table shows the preferences of four types of voters over four possible outcomes: W,X,Y,and Z.In addition,the table shows the percentage of voters of each type.Suppose that,for some reason,W is eliminated as a possible option.Using a Borda count election,with 3 points for the best choice,2 points for the second best choice,and 1 point for the last choice,which outcome would win this election?

Accepted Answer

A)  X 
B)  Y 
C)  Z 
D)  There would be a three-way tie. 
A)  X 
B)  Y 
C)  Z 
D)  There would be a three-way tie.

Question 8

Neuro-economists

Accepted Answer

A)  study how emotions influence peoples' choices. 
B)  have found that people are more likely to take a foolish risk when they are in a "positive arousal state." 
C)  have found that brains assess risk and return separately. 
D)  All of the above are correct. 
A)  study how emotions influence peoples' choices. 
B)  have found that people are more likely to take a foolish risk when they are in a "positive arousal state." 
C)  have found that brains assess risk and return separately. 
D)  All of the above are correct.

Question 9

Economic theory assumes that voters,politicians,and other political participants are largely motivated by

Accepted Answer

A)  personal self-interest. 
B)  altruism. 
C)  a desire to promote the general welfare. 
D)  a desire to promote allocative economic efficiency. 
A)  personal self-interest. 
B)  altruism. 
C)  a desire to promote the general welfare. 
D)  a desire to promote allocative economic efficiency.

Question 10

Political leaders are always aiming for an optimal combination of efficiency and equality.

Accepted Answer

A) True 
 B)False

Question 11

In the employer-worker relationship,the employer is regarded as the "principal" and the worker is regarded as the "agent."

Accepted Answer

A) True 
 B)False

Question 12

The assertion that the median voter is "king" refers directly to the result established by the

Accepted Answer

A)  Arrow impossibility theorem. 
B)  Condorcet paradox. 
C)  median voter theorem. 
D)  Borda mechanism. 
A)  Arrow impossibility theorem. 
B)  Condorcet paradox. 
C)  median voter theorem. 
D)  Borda mechanism.

Question 13

Suppose that an economics department is offering a student exchange program with a university in Moscow,Russia.If the department requires students to submit an essay in order to be considered for the program,the essay may be an example of a(n)

Accepted Answer

A)  signal. 
B)  screen. 
C)  efficiency wage. 
D)  principal. 
A)  signal. 
B)  screen. 
C)  efficiency wage. 
D)  principal.

Question 14

Table 22-4
Five voters must choose from among four options: A,B,C,or D.Each voter's preferences are summarized in the table below.Options higher in the table are more preferred by the voter.
  
-Refer to Table 22-4.Which pairwise voting scheme would result in outcome A?

Accepted Answer

A)  First,choose between A and B.Second,voters choose between the winner of the first vote and C.Third,voters choose between the winner of the second vote and D. 
B)  First,choose between A and C.Second,voters choose between the winner of the first vote and B.Third,voters choose between the winner of the second vote and D. 
C)  First,choose between B and D.Second,voters choose between the winner of the first vote and C.Third,voters choose between the winner of the second vote and A. 
D)  First,choose between C and D.Second,voters choose between the winner of the first vote and A.Third,voters choose between the winner of the second vote and B. 
A)  First,choose between A and B.Second,voters choose between the winner of the first vote and C.Third,voters choose between the winner of the second vote and D. 
B)  First,choose between A and C.Second,voters choose between the winner of the first vote and B.Third,voters choose between the winner of the second vote and D. 
C)  First,choose between B and D.Second,voters choose between the winner of the first vote and C.Third,voters choose between the winner of the second vote and A. 
D)  First,choose between C and D.Second,voters choose between the winner of the first vote and A.Third,voters choose between the winner of the second vote and B.

Question 15

The Condorcet paradox

Accepted Answer

A)  proved that the Arrow impossibility theorem is wrong. 
B)  was proved wrong by the Arrow impossibility theorem. 
C)  serves as an example of the Arrow impossibility theorem. 
D)  pertains to voting systems,whereas Arrow's Impossibility Theorem does not. 
A)  proved that the Arrow impossibility theorem is wrong. 
B)  was proved wrong by the Arrow impossibility theorem. 
C)  serves as an example of the Arrow impossibility theorem. 
D)  pertains to voting systems,whereas Arrow's Impossibility Theorem does not.

Question 16

An example of signaling is a boyfriend giving an expensive,romantic gift to his girlfriend to convey his love for her.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A)  if Republicans want to win,they will take a "middle-of-the-road" stance on many issues. 
B)  if Democrats want to win,they will take an extreme stance on many issues. 
C)  Republicans and Democrats go to extremes to differentiate themselves from one another. 
D)  Republicans and Democrats work hard to identify the fringe voters. 
A)  if Republicans want to win,they will take a "middle-of-the-road" stance on many issues. 
B)  if Democrats want to win,they will take an extreme stance on many issues. 
C)  Republicans and Democrats go to extremes to differentiate themselves from one another. 
D)  Republicans and Democrats work hard to identify the fringe voters.

Question 18

The frontier field of economics that studies how emotions influence peoples' choices is known as

Accepted Answer

A)  emotive-economics. 
B)  neuro-economics. 
C)  brain-economics. 
D)  feeling-economics. 
A)  emotive-economics. 
B)  neuro-economics. 
C)  brain-economics. 
D)  feeling-economics.

Question 19

Insurance companies charge annual premiums to collect revenue,which they then use to pay customers who file claims for damages they incur.Because of the moral hazard problem insurance companies separate customers into groups.Group 1: customers who file few claims & Group 2: customers that file a lot of claims.After creating these groups,what happens to the average annual premium within a group?

Accepted Answer

A)  Group 1: average annual premium increases
Group 2: average annual premium increases 
B)  Group 1: average annual premium decreases
Group 2: average annual premium increases 
C)  Group 1: average annual premium increases
Group 2: average annual premium decreases 
D)  Group 1: average annual premium decreases
Group 2: average annual premium decreases 
A)  Group 1: average annual premium increases
Group 2: average annual premium increases 
B)  Group 1: average annual premium decreases
Group 2: average annual premium increases 
C)  Group 1: average annual premium increases
Group 2: average annual premium decreases 
D)  Group 1: average annual premium decreases
Group 2: average annual premium decreases

Question 20

Economic theory assumes people are always rational.Yet observation indicates that people do not always behave rationally.Which of the following is not a systematic mistake people make in their decisionmaking?

Accepted Answer

A)  People often interpret information to fit beliefs already held. 
B)  People place too much emphasis in their decisionmaking on a few extreme situations of which they are aware. 
C)  People tend to view current prices differently than they view future prices. 
D)  People are too sure of their own abilities. 
A)  People often interpret information to fit beliefs already held. 
B)  People place too much emphasis in their decisionmaking on a few extreme situations of which they are aware. 
C)  People tend to view current prices differently than they view future prices. 
D)  People are too sure of their own abilities.

Exam 22: Frontiers of Microeconomics

Information asymmetry refers to

The fact that someone with a high risk of medical problems is likely to buy a large amount of health insurance is an example of

An example of asymmetric information is when a seller of a house knows more than the buyer about the house's condition.

Which of the following is an example of signaling?

Table 22-7 -Refer to Table 22-7.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.Using this information,what is the most preferred budget of the median voter?

A firm with a very good product

Neuro-economists

Economic theory assumes that voters,politicians,and other political participants are largely motivated by

Political leaders are always aiming for an optimal combination of efficiency and equality.

In the employer-worker relationship,the employer is regarded as the "principal" and the worker is regarded as the "agent."

The assertion that the median voter is "king" refers directly to the result established by the

Suppose that an economics department is offering a student exchange program with a university in Moscow,Russia.If the department requires students to submit an essay in order to be considered for the program,the essay may be an example of a(n)

Table 22-4 Five voters must choose from among four options: A,B,C,or D.Each voter's preferences are summarized in the table below.Options higher in the table are more preferred by the voter. -Refer to Table 22-4.Which pairwise voting scheme would result in outcome A?

The Condorcet paradox

An example of signaling is a boyfriend giving an expensive,romantic gift to his girlfriend to convey his love for her.

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

The frontier field of economics that studies how emotions influence peoples' choices is known as

Economic theory assumes people are always rational.Yet observation indicates that people do not always behave rationally.Which of the following is not a systematic mistake people make in their decisionmaking?

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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