Question 1

People interpret evidence to confirm beliefs they already hold.This statement is an example of which of the following systematic mistakes that people make?

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 2

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 Wanda first,then the winner was in a second election versus Brian,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 3

Effective signals

Accepted Answer

A)  convey useful information from informed parties to uninformed parties. 
B)  impose little or no cost on the signaler. 
C)  cannot be conveyed accurately when there is an information asymmetry. 
D)  can be used by employers to alleviate the moral hazard problem in the workplace. 
A)  convey useful information from informed parties to uninformed parties. 
B)  impose little or no cost on the signaler. 
C)  cannot be conveyed accurately when there is an information asymmetry. 
D)  can be used by employers to alleviate the moral hazard problem in the workplace.

Question 4

Which of the following events best exemplifies the concept of signaling?

Accepted Answer

A)  A college student's parents,having learned that their child is short of money,send her a check for $1,000. 
B)  A woman,who is trying to win the love of a certain man,buys him a very personal gift. 
C)  A grocery store maintains a policy of examining the driver's license of everyone who writes a personal check to purchase his groceries. 
D)  A university maintains a policy of considering for admission only those students who graduated among the top ten percent of their high school class. 
A)  A college student's parents,having learned that their child is short of money,send her a check for $1,000. 
B)  A woman,who is trying to win the love of a certain man,buys him a very personal gift. 
C)  A grocery store maintains a policy of examining the driver's license of everyone who writes a personal check to purchase his groceries. 
D)  A university maintains a policy of considering for admission only those students who graduated among the top ten percent of their high school class.

Question 5

Which of the following is not correct?

Accepted Answer

A)  An example of adverse selection is man who tries to sell his used car without disclosing that it needs a new transmission. 
B)  The "invisible hand" of a free market will always fix the problems of adverse selection and moral hazard. 
C)  An employer may try to prevent a moral hazard problem by paying her workers an efficiency wage. 
D)  One interpretation of gift giving is that it reflects asymmetric information and signaling. 
A)  An example of adverse selection is man who tries to sell his used car without disclosing that it needs a new transmission. 
B)  The "invisible hand" of a free market will always fix the problems of adverse selection and moral hazard. 
C)  An employer may try to prevent a moral hazard problem by paying her workers an efficiency wage. 
D)  One interpretation of gift giving is that it reflects asymmetric information and signaling.

Question 6

When the buyer knows less than the seller about the characteristics of the good being sold,there is

Accepted Answer

A)  a principal-agent problem. 
B)  a moral hazard problem. 
C)  an adverse selection problem. 
D)  a signaling problem. 
A)  a principal-agent problem. 
B)  a moral hazard problem. 
C)  an adverse selection problem. 
D)  a signaling problem.

Question 7

Employers may choose to pay their workers a wage that exceeds the equilibrium wage according to

Accepted Answer

A)  efficiency-wage theories. 
B)  equilibrium wage theories. 
C)  screening theories. 
D)  signaling theories. 
A)  efficiency-wage theories. 
B)  equilibrium wage theories. 
C)  screening theories. 
D)  signaling theories.

Question 8

Table 22-3
The citizens of Paradoxopolis will decide whether to build a new school,build a new park,or build a new road.Exactly one of the three choices will prevail,and the choice will be made by way of pairwise voting,with the majority determining the outcome on each vote.The preferences of the voters are summarized in the table below.
  
-Refer to Table 22-3.If (1)the first vote pits "school" against "park," and (2)the second vote pits "road" against the winner of the first vote,then the outcome is as follows:

Accepted Answer

A)  "School" wins the first vote and "school" wins the second vote,so they build a school. 
B)  "School" wins the first vote and "road" wins the second vote,so they build a road. 
C)  "Park" wins the first vote and "park" wins the second vote,so they build a park. 
D)  "Park" wins the first vote and "road" wins the second vote,so they build a road. 
A)  "School" wins the first vote and "school" wins the second vote,so they build a school. 
B)  "School" wins the first vote and "road" wins the second vote,so they build a road. 
C)  "Park" wins the first vote and "park" wins the second vote,so they build a park. 
D)  "Park" wins the first vote and "road" wins the second vote,so they build a road.

Question 9

Economists use basic psychological insights in the field of study called

Accepted Answer

A)  psychological economics. 
B)  transitional economics. 
C)  behavioral economics. 
D)  social economics. 
A)  psychological economics. 
B)  transitional economics. 
C)  behavioral economics. 
D)  social economics.

Question 10

In corporations,which of the following are agents but not principals?

Accepted Answer

A)  shareholders 
B)  the board of directors 
C)  managers 
D)  workers 
A)  shareholders 
B)  the board of directors 
C)  managers 
D)  workers

Question 11

Which of the following statements is not true about the 2002 Farm Security Act?

Accepted Answer

A)  The Act provides funding to improve national security. 
B)  The stated purpose of the Act is to provide farmers with price stability. 
C)  The "farmers" receiving money from the Act include Ted Turner and Charles Schwab. 
D)  The Act provides subsidies to farmers of mohair,chickpeas,and lentils. 
A)  The Act provides funding to improve national security. 
B)  The stated purpose of the Act is to provide farmers with price stability. 
C)  The "farmers" receiving money from the Act include Ted Turner and Charles Schwab. 
D)  The Act provides subsidies to farmers of mohair,chickpeas,and lentils.

Question 12

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.Based on this information,which of the following statements is false?

Accepted Answer

A)  Outcome W is preferred to outcome X overall. 
B)  Outcome X is preferred to outcome Y overall. 
C)  Outcome Y is preferred to outcome W overall. 
D)  Outcome W is preferred to outcome Z overall. 
A)  Outcome W is preferred to outcome X overall. 
B)  Outcome X is preferred to outcome Y overall. 
C)  Outcome Y is preferred to outcome W overall. 
D)  Outcome W is preferred to outcome Z overall.

Question 13

The ultimatum game reveals that

Accepted Answer

A)  it does not make sense to try to maximize profits. 
B)  people may have an innate sense of fairness that economic theory does not capture. 
C)  offering someone a wildly unfair outcome is usually ok since people tend to make decisions using a "something is better than nothing" philosophy. 
D)  Both a and b 
A)  it does not make sense to try to maximize profits. 
B)  people may have an innate sense of fairness that economic theory does not capture. 
C)  offering someone a wildly unfair outcome is usually ok since people tend to make decisions using a "something is better than nothing" philosophy. 
D)  Both a and b

Question 14

The classic example of adverse selection is the market for used cars.

Accepted Answer

A) True 
 B)False

Question 15

Herbert Simon suggested that people are not rational maximizers but satisficers,meaning that they choose a course of action that is

Accepted Answer

A)  personally satisfying,with a greater emphasis on personal consumption than on fairness. 
B)  socially satisfying,with a greater emphasis on fairness than on personal consumption. 
C)  good enough. 
D)  risk averse. 
A)  personally satisfying,with a greater emphasis on personal consumption than on fairness. 
B)  socially satisfying,with a greater emphasis on fairness than on personal consumption. 
C)  good enough. 
D)  risk averse.

Question 16

The Condorcet paradox demonstrates that the order in which people vote on choices may influence the final outcome.

Accepted Answer

A) True 
 B)False

Question 17

Researchers have found that the systematic mistakes that people make in their decisionmaking include a lack of confidence in their own abilities.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following relationships involves asymmetric information?

Accepted Answer

A)  An employee knows more than his employer knows about his work effort. 
B)  A borrower knows more than the lender about his ability to repay the loan. 
C)  The seller of a 30-year-old house knows more than the buyer about the condition of the house. 
D)  All of the above are correct. 
A)  An employee knows more than his employer knows about his work effort. 
B)  A borrower knows more than the lender about his ability to repay the loan. 
C)  The seller of a 30-year-old house knows more than the buyer about the condition of the house. 
D)  All of the above are correct.

Question 19

Arrow's impossibility theorem shows that it is impossible to find a better voting system than pairwise majority voting.

Accepted Answer

A) True 
 B)False

Question 20

Evidence from experiments in which real people play the ultimatum game supports the idea that people

Accepted Answer

A)  are rational wealth-maximizers. 
B)  tend to be driven by fairness,without regard for their own self-interest. 
C)  are driven by both fairness and self-interest. 
D)  have trouble calculating their own levels of wealth. 
A)  are rational wealth-maximizers. 
B)  tend to be driven by fairness,without regard for their own self-interest. 
C)  are driven by both fairness and self-interest. 
D)  have trouble calculating their own levels of wealth.

Exam 22: Frontiers of Microeconomics

People interpret evidence to confirm beliefs they already hold.This statement is an example of which of the following systematic mistakes that people make?

Effective signals

Which of the following events best exemplifies the concept of signaling?

Which of the following is not correct?

When the buyer knows less than the seller about the characteristics of the good being sold,there is

Employers may choose to pay their workers a wage that exceeds the equilibrium wage according to

Economists use basic psychological insights in the field of study called

In corporations,which of the following are agents but not principals?

Which of the following statements is not true about the 2002 Farm Security Act?

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.Based on this information,which of the following statements is false?

The ultimatum game reveals that

The classic example of adverse selection is the market for used cars.

Herbert Simon suggested that people are not rational maximizers but satisficers,meaning that they choose a course of action that is

The Condorcet paradox demonstrates that the order in which people vote on choices may influence the final outcome.

Researchers have found that the systematic mistakes that people make in their decisionmaking include a lack of confidence in their own abilities.

Which of the following relationships involves asymmetric information?

Arrow's impossibility theorem shows that it is impossible to find a better voting system than pairwise majority voting.

Evidence from experiments in which real people play the ultimatum game supports the idea that people

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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