Question 1

A woman gives her boyfriend a birthday present.The gift could be viewed by the boyfriend as a

Accepted Answer

A)  moral hazard problem. 
B)  screening device. 
C)  signal of how much she cares for him. 
D)  All of the above are correct. 
A)  moral hazard problem. 
B)  screening device. 
C)  signal of how much she cares for him. 
D)  All of the above are correct.

Question 2

Which of the following is an example of informational asymmetry?

Accepted Answer

A)  A seller of a house knows more about its true condition than does a potential buyer. 
B)  A salesperson knows more about her efforts than does her manager. 
C)  A child knows more about how much time he spent playing video games while he was alone in his bedroom than do his parents. 
D)  All of the above are correct. 
A)  A seller of a house knows more about its true condition than does a potential buyer. 
B)  A salesperson knows more about her efforts than does her manager. 
C)  A child knows more about how much time he spent playing video games while he was alone in his bedroom than do his parents. 
D)  All of the above are correct.

Question 3

As an alternative to pairwise majority voting,each voter could be asked to rank the possible outcomes,giving 1 point to her lowest choice,2 points to her second-lowest choice,3 points to her third-lowest choice,and so on.This voting method is called a(n)

Accepted Answer

A)  median vote. 
B)  pairwise minority vote. 
C)  Borda count. 
D)  Arrow count. 
A)  median vote. 
B)  pairwise minority vote. 
C)  Borda count. 
D)  Arrow count.

Question 4

Which of the following students exhibits satisficing behavior?

Accepted Answer

A)  Alex studies his economics notes every night so that he can be sure to earn a perfect score on his exam. 
B)  Brody studies his economics notes for a few hours the night before the test because he will be satisfied with a C on his exam. 
C)  Camilla studies extensively as she will only be satisfied with a very high score. 
D)  None of these students exhibits satisficing behavior. 
A)  Alex studies his economics notes every night so that he can be sure to earn a perfect score on his exam. 
B)  Brody studies his economics notes for a few hours the night before the test because he will be satisfied with a C on his exam. 
C)  Camilla studies extensively as she will only be satisfied with a very high score. 
D)  None of these students exhibits satisficing behavior.

Question 5

A safe driver would likely choose an auto insurance policy with a

Accepted Answer

A)  low premium and a high deductible. 
B)  high premium and a high deductible. 
C)  high premium and a low deductible. 
D)  high premium and no deductible. 
A)  low premium and a high deductible. 
B)  high premium and a high deductible. 
C)  high premium and a low deductible. 
D)  high premium and no deductible.

Question 6

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

Accepted Answer

A)  the hidden characteristics problem. 
B)  the lemons problem. 
C)  moral hazard. 
D)  adverse selection. 
A)  the hidden characteristics problem. 
B)  the lemons problem. 
C)  moral hazard. 
D)  adverse selection.

Question 7

Bill owns a small business in Milwaukee.He travels frequently,meeting with important customers,and attending conferences.Bill hired Nicole to work in the Milwaukee office as the day-to-day general manager of the business.

Accepted Answer

A)  This is a moral hazard problem since Nicole may not work as hard as Bill would like when she is not monitored. 
B)  Bill choosing to hire Nicole is an example of adverse selection since it is possible that Nicole will not work as hard as Bill expects. 
C)  Bill will most likely pay Nicole a lower salary than normal since Bill will not be there to monitor Nicole's work effort,and since Nicole will not likely work hard knowing Bill cannot monitor her effort. 
D)  The Condorcet Paradox implies that Nicole will not work as hard as Bill would like even though he will likely pay her an above equilibrium wage. 
A)  This is a moral hazard problem since Nicole may not work as hard as Bill would like when she is not monitored. 
B)  Bill choosing to hire Nicole is an example of adverse selection since it is possible that Nicole will not work as hard as Bill expects. 
C)  Bill will most likely pay Nicole a lower salary than normal since Bill will not be there to monitor Nicole's work effort,and since Nicole will not likely work hard knowing Bill cannot monitor her effort. 
D)  The Condorcet Paradox implies that Nicole will not work as hard as Bill would like even though he will likely pay her an above equilibrium wage.

Question 8

Suppose that there are 175 voters in an election and that 80 of them prefer a $100 budget while the remainder prefer a $150 budget.Which of the following statements is true?

Accepted Answer

A)  The Condorcet Paradox predicts that the $100 budget will win even though fewer people prefer that budget. 
B)  The median voter theorem predicts that the winning budget will be $125,the median of the preferences of the two types of voters. 
C)  Arrow's impossibility theorem says that the winning budget cannot be determined in this election since there is no unanimity. 
D)  None of the above. 
A)  The Condorcet Paradox predicts that the $100 budget will win even though fewer people prefer that budget. 
B)  The median voter theorem predicts that the winning budget will be $125,the median of the preferences of the two types of voters. 
C)  Arrow's impossibility theorem says that the winning budget cannot be determined in this election since there is no unanimity. 
D)  None of the above.

Question 9

When each voter has a most-preferred outcome for the expenditure on a particular government program,majority rule will produce the outcome

Accepted Answer

A)  preferred by the mean (average)voter. 
B)  preferred by the median voter. 
C)  that causes the political party in power to increase its power. 
D)  defined by Arrow's Impossibility Theorem. 
A)  preferred by the mean (average)voter. 
B)  preferred by the median voter. 
C)  that causes the political party in power to increase its power. 
D)  defined by Arrow's Impossibility Theorem.

Question 10

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.Which of the following statements regarding this information is true?

Accepted Answer

A)  In an election between a $33 budget and a $37 budget,the $33 budget will win. 
B)  Since the median voter theorem implies that the budget of the median voter will win the election,we would expect the overall best budget to be $25,the median of the available budgets. 
C)  In an election between a $10 budget and a $40 budget,the $40 budget will win. 
D)  Both b and c 
A)  In an election between a $33 budget and a $37 budget,the $33 budget will win. 
B)  Since the median voter theorem implies that the budget of the median voter will win the election,we would expect the overall best budget to be $25,the median of the available budgets. 
C)  In an election between a $10 budget and a $40 budget,the $40 budget will win. 
D)  Both b and c

Question 11

A survey of 1,500 frequent restaurant patrons revealed that,Julio's,a local Mexican restaurant offers high-quality food at low prices.Based on one dining experience,a restaurant critic gave Julio's a poor review,saying the food was not very good.As a result,you decide not to dine at Julio's.This decision is an example of which of the following systematic mistakes that people make when making decisions?

Accepted Answer

A)  People are overconfident. 
B)  People give too much weight to a small number of vivid observations. 
C)  People are reluctant to change their minds. 
D)  All of the above. 
A)  People are overconfident. 
B)  People give too much weight to a small number of vivid observations. 
C)  People are reluctant to change their minds. 
D)  All of the above.

Question 12

A brand of wine is priced at only $5 per bottle,far below the market price of most high quality wines.Before any reputation exists for the wine,consumers buy very little of this inexpensive wine because they interpret the low price to mean that the wine is of poor quality.The company decides to change the label on the wine to show that it has won awards for quality.This label change is an example of

Accepted Answer

A)  signaling. 
B)  screening. 
C)  selecting. 
D)  All of the above are correct. 
A)  signaling. 
B)  screening. 
C)  selecting. 
D)  All of the above are correct.

Question 13

Table 22-6
  
-Refer to Table 22-6.The table shows the preferences of three types of voters over three possible outcomes: X,Y,and Z.In addition,the table shows the percentage of voters of each type.Based on this information,which of the following statements is true?

Accepted Answer

A)  As the Condorcet Paradox predicts,majority rule fails to produce transitive preferences for society. 
B)  As Arrow's Impossibility Theorem demonstrates,it is impossible from this information to determine which outcome the voters prefer. 
C)  The median voter theorem allows us to conclude that in a vote between X and Y,Y will win since the Type 2 voter is the median voter. 
D)  While the Condorcet Paradox predicts that majority rule may not produce transitive preferences for society as a whole,society's preferences in this case are transitive. 
A)  As the Condorcet Paradox predicts,majority rule fails to produce transitive preferences for society. 
B)  As Arrow's Impossibility Theorem demonstrates,it is impossible from this information to determine which outcome the voters prefer. 
C)  The median voter theorem allows us to conclude that in a vote between X and Y,Y will win since the Type 2 voter is the median voter. 
D)  While the Condorcet Paradox predicts that majority rule may not produce transitive preferences for society as a whole,society's preferences in this case are transitive.

Question 14

Students of microeconomic principles often say they are going to study "tonight," because the only way to pass the exam is to study some every night.When "tonight" comes,some students choose to do something else.Come exam-day,these students do not do well on their exam.This observation is an example of how people

Accepted Answer

A)  are inconsistent over time. 
B)  are consistent over time. 
C)  are mainly interested in fairness. 
D)  are rational. 
A)  are inconsistent over time. 
B)  are consistent over time. 
C)  are mainly interested in fairness. 
D)  are rational.

Question 15

The temptation of imperfectly-monitored workers to shirk their responsibilities is

Accepted Answer

A)  an example of the moral hazard problem. 
B)  an example of the adverse selection problem. 
C)  an example of screening. 
D)  an example of signaling. 
A)  an example of the moral hazard problem. 
B)  an example of the adverse selection problem. 
C)  an example of screening. 
D)  an example of signaling.

Question 16

In the case of a moral-hazard problem,which of the following is not a way for the principal to encourage the agent to act more responsibly?

Accepted Answer

A)  the principal could better monitor the agent 
B)  the principal could pay the agent above-equilibrium wages 
C)  the principal could delay payment to the agent 
D)  the principal could pay the agent below-equilibrium wages 
A)  the principal could better monitor the agent 
B)  the principal could pay the agent above-equilibrium wages 
C)  the principal could delay payment to the agent 
D)  the principal could pay the agent below-equilibrium wages

Question 17

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 B?

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 B and C.Second,voters choose between the winner of the first vote and A.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 B and C.Second,voters choose between the winner of the first vote and A.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 18

Which of the following would be an example of a principal trying to deal with a moral hazard problem?

Accepted Answer

A)  The parents of an infant secretly place video cameras in their house before the baby-sitter arrives. 
B)  An insurance company checks police records to determine if its policyholders have received traffic citations. 
C)  An employer examines his workers' output on a daily basis. 
D)  All of the above are correct. 
A)  The parents of an infant secretly place video cameras in their house before the baby-sitter arrives. 
B)  An insurance company checks police records to determine if its policyholders have received traffic citations. 
C)  An employer examines his workers' output on a daily basis. 
D)  All of the above are correct.

Question 19

Studies of human decision-making show that

Accepted Answer

A)  firms are less likely to maximize profits than consumers are to maximize utility. 
B)  firms are more likely to maximize profits than consumers are to maximize utility. 
C)  people are irrational more often than they are rational. 
D)  people are reluctant to change their minds. 
A)  firms are less likely to maximize profits than consumers are to maximize utility. 
B)  firms are more likely to maximize profits than consumers are to maximize utility. 
C)  people are irrational more often than they are rational. 
D)  people are reluctant to change their minds.

Question 20

Evidence from experiments in which real people play the ultimatum game supports the idea that people care about fairness as well as about maximization of their personal wealth.

Accepted Answer

A) True 
 B)False

Exam 22: Frontiers of Microeconomics

A woman gives her boyfriend a birthday present.The gift could be viewed by the boyfriend as a

Which of the following is an example of informational asymmetry?

As an alternative to pairwise majority voting,each voter could be asked to rank the possible outcomes,giving 1 point to her lowest choice,2 points to her second-lowest choice,3 points to her third-lowest choice,and so on.This voting method is called a(n)

Which of the following students exhibits satisficing behavior?

A safe driver would likely choose an auto insurance policy with a

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

Bill owns a small business in Milwaukee.He travels frequently,meeting with important customers,and attending conferences.Bill hired Nicole to work in the Milwaukee office as the day-to-day general manager of the business.

Suppose that there are 175 voters in an election and that 80 of them prefer a $100 budget while the remainder prefer a $150 budget.Which of the following statements is true?

When each voter has a most-preferred outcome for the expenditure on a particular government program,majority rule will produce the outcome

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.Which of the following statements regarding this information is true?

Table 22-6 -Refer to Table 22-6.The table shows the preferences of three types of voters over three possible outcomes: X,Y,and Z.In addition,the table shows the percentage of voters of each type.Based on this information,which of the following statements is true?

The temptation of imperfectly-monitored workers to shirk their responsibilities is

In the case of a moral-hazard problem,which of the following is not a way for the principal to encourage the agent to act more responsibly?

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 B?

Which of the following would be an example of a principal trying to deal with a moral hazard problem?

Studies of human decision-making show that

Evidence from experiments in which real people play the ultimatum game supports the idea that people care about fairness as well as about maximization of their personal wealth.

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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