Question 1

If the median voter theorem holds,

Accepted Answer

A)  a Borda count will violate the principle of transitivity. 
B)  the Condorcet paradox also holds. 
C)  minority views will not receive much consideration. 
D)  All of the above are correct. 
A)  a Borda count will violate the principle of transitivity. 
B)  the Condorcet paradox also holds. 
C)  minority views will not receive much consideration. 
D)  All of the above are correct.

Question 2

Robert borrowed some money from Granite Bank,telling the loan officer that he intended to use the money to make repairs to his home.After getting the loan,Robert and his girlfriend immediately took the money and headed to the nearest riverboat casino for a weekend of gambling and entertainment.

Accepted Answer

A)  This is an example of adverse selection since banks have difficulty selecting their customers. 
B)  This is a typical example of the Condorcet Paradox. 
C)  From the given information,Robert is the principal and his girlfriend is the agent. 
D)  From the given information,Granite Bank is the principal and Robert is the agent. 
A)  This is an example of adverse selection since banks have difficulty selecting their customers. 
B)  This is a typical example of the Condorcet Paradox. 
C)  From the given information,Robert is the principal and his girlfriend is the agent. 
D)  From the given information,Granite Bank is the principal and Robert is the agent.

Question 3

The classic example of adverse selection is the

Accepted Answer

A)  market for used cars. 
B)  market for new cars. 
C)  relationship between shareholders and managers. 
D)  relationship between a coach and an athlete. 
A)  market for used cars. 
B)  market for new cars. 
C)  relationship between shareholders and managers. 
D)  relationship between a coach and an athlete.

Question 4

When asymmetric information affects a relationship between two parties,it is always the case that

Accepted Answer

A)  neither party is well informed. 
B)  one party is better informed than the other party. 
C)  both parties are equally well informed. 
D)  the government is better informed than either of the two parties. 
A)  neither party is well informed. 
B)  one party is better informed than the other party. 
C)  both parties are equally well informed. 
D)  the government is better informed than either of the two parties.

Question 5

A life insurance company requires new applicants to have a medical exam prior to writing the insurance policy.This requirement is an example of

Accepted Answer

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

Question 6

In his 1951 book,Social Choice and Individual Values,Kenneth Arrow used the term "unanimity" to mean

Accepted Answer

A)  A beats B only if everyone prefers A to B. 
B)  if everyone prefers A to B,then A beats B. 
C)  if A beats B and B beats C,then A must best C. 
D)  everyone who is eligible to vote must vote;otherwise,the outcome is invalid. 
A)  A beats B only if everyone prefers A to B. 
B)  if everyone prefers A to B,then A beats B. 
C)  if A beats B and B beats C,then A must best C. 
D)  everyone who is eligible to vote must vote;otherwise,the outcome is invalid.

Question 7

Which of the following statements captures the meaning of transitivity of preferences?

Accepted Answer

A)  If A is preferred to B,then B is less preferred than A. 
B)  If A is preferred to B,and B is preferred to C,then A is preferred to C. 
C)  If A is preferred to B and B is preferred to C,then the preference for A over B is stronger than the preference for B over C. 
D)  If A is preferred to C,then there exists B such that A is preferred to B and C is preferred to A. 
A)  If A is preferred to B,then B is less preferred than A. 
B)  If A is preferred to B,and B is preferred to C,then A is preferred to C. 
C)  If A is preferred to B and B is preferred to C,then the preference for A over B is stronger than the preference for B over C. 
D)  If A is preferred to C,then there exists B such that A is preferred to B and C is preferred to A.

Question 8

Asymmetric information,political economy,and behavioral economics

Accepted Answer

A)  are topics at the frontier of microeconomics. 
B)  are topics that economists no longer research. 
C)  are being studied as economists try to expand their understanding of human behavior and society. 
D)  both a and c are correct. 
A)  are topics at the frontier of microeconomics. 
B)  are topics that economists no longer research. 
C)  are being studied as economists try to expand their understanding of human behavior and society. 
D)  both a and c are correct.

Question 9

Table 22-2
Three longtime friends-Fred,Barney,and Wilma-are deciding how they will spend their Sunday afternoon.They all agree that they should do one of three things: go to a movie,go to the beach,or go to a museum.They also agree that they will have two pairwise votes to determine how to spend their evening,with the majority determining the outcome on each vote.The first,second,and third choices for each person are as indicated in the table below.
  
-Refer to Table 22-2.Which of the following statements is correct regarding the Condorcet paradox and the results of pairwise voting by Fred,Barney,and Wilma?

Accepted Answer

A)  The paradox implies that pairwise voting never produces transitive preferences,and so the voting by Fred,Barney,and Wilma fails to produce transitive preferences. 
B)  The paradox implies that pairwise voting sometimes (but not always)produces transitive preferences,and the voting by Fred,Barney,and Wilma does produce transitive preferences. 
C)  The paradox implies that pairwise voting sometimes (but not always)fails to produce transitive preferences,and the voting by Fred,Barney,and Wilma fails to produce transitive preferences. 
D)  The paradox does not apply to the case at hand,because Barney's preferences are not individually transitive. 
A)  The paradox implies that pairwise voting never produces transitive preferences,and so the voting by Fred,Barney,and Wilma fails to produce transitive preferences. 
B)  The paradox implies that pairwise voting sometimes (but not always)produces transitive preferences,and the voting by Fred,Barney,and Wilma does produce transitive preferences. 
C)  The paradox implies that pairwise voting sometimes (but not always)fails to produce transitive preferences,and the voting by Fred,Barney,and Wilma fails to produce transitive preferences. 
D)  The paradox does not apply to the case at hand,because Barney's preferences are not individually transitive.

Question 10

Scenario 22-3
Three candidates,Frank,Brian,and Wanda,are running for office.There are three voters in the upcoming election: Henry,Diane,and Linda.Henry prefers Brian over Frank and Frank over Wanda.Diane prefers Wanda over Brian and Brian over Frank.Linda prefers Frank over Brian and Brian over Wanda.
-Refer to Scenario 22-3.If the voters were given a choice of Frank versus Brian first,then the winner was in a second election versus Wanda,who would win?

Accepted Answer

A)  Frank 
B)  Brian 
C)  Wanda 
D)  There is not enough information to answer this question. 
A)  Frank 
B)  Brian 
C)  Wanda 
D)  There is not enough information to answer this question.

Question 11

The suggestion that people are "satisficers" is similar to the view that people

Accepted Answer

A)  are wealth-maximizers. 
B)  exhibit "bounded rationality." 
C)  go to a lot of trouble to weigh costs and benefits before choosing a course of action. 
D)  change their minds often. 
A)  are wealth-maximizers. 
B)  exhibit "bounded rationality." 
C)  go to a lot of trouble to weigh costs and benefits before choosing a course of action. 
D)  change their minds often.

Question 12

In a dictator game,player A must divide $100 between player A and player B.In this game,player B does not have the opportunity to reject an offer - they go home with whatever player A offers.Experiments have observed that when player A splits the $100,he or she consistently offers over $10 to player B.Which of the following comments fits best.

Accepted Answer

A)  Although player A is acting as economic theory usually assumes,he or she makes such offers because they seem more fair. 
B)  Although player A is acting as economic theory usually assumes,he or she makes such offers although they are not fair. 
C)  Although player A is not acting as economic theory usually assumes,he or she makes such offers because they seem more fair. 
D)  Although player A is not acting as economic theory usually assumes,he or she makes such offers because they are not fair. 
A)  Although player A is acting as economic theory usually assumes,he or she makes such offers because they seem more fair. 
B)  Although player A is acting as economic theory usually assumes,he or she makes such offers although they are not fair. 
C)  Although player A is not acting as economic theory usually assumes,he or she makes such offers because they seem more fair. 
D)  Although player A is not acting as economic theory usually assumes,he or she makes such offers because they are not fair.

Question 13

In view of the possible need for government action in markets where asymmetric information is a problem,which of the following is a valid concern?

Accepted Answer

A)  The government rarely has more information than the private parties. 
B)  Private markets can sometimes deal with information asymmetries on their own. 
C)  The government is itself an imperfect institution. 
D)  All of the above are valid concerns. 
A)  The government rarely has more information than the private parties. 
B)  Private markets can sometimes deal with information asymmetries on their own. 
C)  The government is itself an imperfect institution. 
D)  All of the above are valid concerns.

Question 14

The adverse selection problem is a likely explanation for the fact that

Accepted Answer

A)  a few months after a new car is purchased,its value decreases very little. 
B)  some corporate managers were recently sent to prison for enriching themselves at the expense of shareholders. 
C)  people in average health may be discouraged from buying health insurance by the high price. 
D)  gifts can be interpreted as signals. 
A)  a few months after a new car is purchased,its value decreases very little. 
B)  some corporate managers were recently sent to prison for enriching themselves at the expense of shareholders. 
C)  people in average health may be discouraged from buying health insurance by the high price. 
D)  gifts can be interpreted as signals.

Question 15

Which of the following is not correct?

Accepted Answer

A)  Economics is a study of the choices that people make and the resulting interactions they have with one another. 
B)  Economists are not interested in finding new areas to study and new phenomena to explain. 
C)  Economists are trying to expand their understanding of human behavior and society. 
D)  The economics of asymmetric information,political economy,and behavioral economics are all topics at the frontier of microeconomics. 
A)  Economics is a study of the choices that people make and the resulting interactions they have with one another. 
B)  Economists are not interested in finding new areas to study and new phenomena to explain. 
C)  Economists are trying to expand their understanding of human behavior and society. 
D)  The economics of asymmetric information,political economy,and behavioral economics are all topics at the frontier of microeconomics.

Question 16

Table 22-2
Three longtime friends-Fred,Barney,and Wilma-are deciding how they will spend their Sunday afternoon.They all agree that they should do one of three things: go to a movie,go to the beach,or go to a museum.They also agree that they will have two pairwise votes to determine how to spend their evening,with the majority determining the outcome on each vote.The first,second,and third choices for each person are as indicated in the table below.
  
-Refer to Table 22-2.If (1)the first vote pits "museum" against "movie," and (2)the second vote pits "beach" against the winner of the first vote,then the outcome is as follows:

Accepted Answer

A)  "Museum" wins the first vote and "museum" wins the second vote,so they go to a museum. 
B)  "Museum" wins the first vote and "beach" wins the second vote,so they go to the beach. 
C)  "Movie" wins the first vote and "movie" wins the second vote,so they go to a movie. 
D)  "Movie" wins the first vote and "beach" wins the second vote,so they go to the beach. 
A)  "Museum" wins the first vote and "museum" wins the second vote,so they go to a museum. 
B)  "Museum" wins the first vote and "beach" wins the second vote,so they go to the beach. 
C)  "Movie" wins the first vote and "movie" wins the second vote,so they go to a movie. 
D)  "Movie" wins the first vote and "beach" wins the second vote,so they go to the beach.

Question 17

Some of the systematic mistakes that people make include

Accepted Answer

A)  being overconfident. 
B)  placing too much weight on events that are more vivid compared to those with greater statistical probability. 
C)  being generally unwilling to change their minds. 
D)  All of the above are correct. 
A)  being overconfident. 
B)  placing too much weight on events that are more vivid compared to those with greater statistical probability. 
C)  being generally unwilling to change their minds. 
D)  All of the above are correct.

Question 18

On car insurance policies,State Ranch Insurance Company offers drivers an option: Policy 1 features a deductible of $1,000,and it requires a driver to pay an annual premium of $500.Policy 2 features a deductible of $500,and it requires a driver to pay an annual premium of $750.

Accepted Answer

A)  In offering these two policies,State Ranch is engaging in illegal price discrimination. 
B)  In offering these two policies,State Ranch is screening drivers. 
C)  Policy 1 is more of a burden for safe drivers than it is for risky drivers. 
D)  In offering these two policies,State Ranch is signaling their quality to drivers. 
A)  In offering these two policies,State Ranch is engaging in illegal price discrimination. 
B)  In offering these two policies,State Ranch is screening drivers. 
C)  Policy 1 is more of a burden for safe drivers than it is for risky drivers. 
D)  In offering these two policies,State Ranch is signaling their quality to drivers.

Question 19

Suppose that residents of a town are asked to vote on the best day to improve the safety of an intersection.The three choices are: a stoplight,a 4-way stop,and a 2-way stop.The mayor asks the residents to assign 3 points to their first choice,2 points to their second choice,and 1 point to their last choice.The intersection will be controlled by the method that receives the most points.This voting scheme is called

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 20

Arrow's impossibility theorem is "disturbing" in the sense that it proves that

Accepted Answer

A)  no voting system is perfect. 
B)  only a dictator can produce a desirable social outcome. 
C)  the preferences of the wealthy should be given more weight than the preferences of the poor. 
D)  the centuries-old Condorcet paradox was not a paradox after all. 
A)  no voting system is perfect. 
B)  only a dictator can produce a desirable social outcome. 
C)  the preferences of the wealthy should be given more weight than the preferences of the poor. 
D)  the centuries-old Condorcet paradox was not a paradox after all.

Exam 22: Frontiers of Microeconomics

If the median voter theorem holds,

Robert borrowed some money from Granite Bank,telling the loan officer that he intended to use the money to make repairs to his home.After getting the loan,Robert and his girlfriend immediately took the money and headed to the nearest riverboat casino for a weekend of gambling and entertainment.

The classic example of adverse selection is the

When asymmetric information affects a relationship between two parties,it is always the case that

A life insurance company requires new applicants to have a medical exam prior to writing the insurance policy.This requirement is an example of

In his 1951 book,Social Choice and Individual Values,Kenneth Arrow used the term "unanimity" to mean

Which of the following statements captures the meaning of transitivity of preferences?

Asymmetric information,political economy,and behavioral economics

The suggestion that people are "satisficers" is similar to the view that people

In view of the possible need for government action in markets where asymmetric information is a problem,which of the following is a valid concern?

The adverse selection problem is a likely explanation for the fact that

Which of the following is not correct?

Some of the systematic mistakes that people make include

On car insurance policies,State Ranch Insurance Company offers drivers an option: Policy 1 features a deductible of $1,000,and it requires a driver to pay an annual premium of $500.Policy 2 features a deductible of $500,and it requires a driver to pay an annual premium of $750.

Arrow's impossibility theorem is "disturbing" in the sense that it proves that

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

Filters