Question 1

Conventional economic theory assumes that people

Accepted Answer

A)  care a great deal about fairness. 
B)  are inconsistent over time in their decisionmaking. 
C)  are rational. 
D)  are satisficers. 
A)  care a great deal about fairness. 
B)  are inconsistent over time in their decisionmaking. 
C)  are rational. 
D)  are satisficers.

Question 2

Assume there are two major political parties: the Conservatives and the Liberals.What does the median voter theorem imply about the nature of the platforms (that is,policy stances)of the Conservatives and Liberals?

Accepted Answer

The median voter theorem implies that po

Question 3

Adverse selection is

Accepted Answer

A)  the tendency of a person who is imperfectly monitored to engage in dishonest or otherwise undesirable behavior. 
B)  an action taken by an uninformed party to induce an informed party to reveal information. 
C)  the failure of majority voting to produce transitive preferences for society. 
D)  the tendency for the mix of unobserved attributes to become undesirable from the standpoint of an uninformed party. 
A)  the tendency of a person who is imperfectly monitored to engage in dishonest or otherwise undesirable behavior. 
B)  an action taken by an uninformed party to induce an informed party to reveal information. 
C)  the failure of majority voting to produce transitive preferences for society. 
D)  the tendency for the mix of unobserved attributes to become undesirable from the standpoint of an uninformed party.

Question 4

Ed was recently hired as a salesman for a national consulting firm.His job involves spending a significant portion of his time out of the office visiting prospects and attending conferences.His firm is paying him a wage that is higher than the equilibrium wage,but he receives much of his income in quarterly bonuses based on how much he sells.

Accepted Answer

A)  The consulting firm is trying to prevent adverse selection with its compensation strategy. 
B)  Ed has an incentive to go golfing with his buddies rather than conducting sales meetings. 
C)  The consulting firm is responding to the moral hazard problem with its compensation strategy. 
D)  Ed should quit this job and take a job where he gets paid an equilibrium wage more frequently. 
A)  The consulting firm is trying to prevent adverse selection with its compensation strategy. 
B)  Ed has an incentive to go golfing with his buddies rather than conducting sales meetings. 
C)  The consulting firm is responding to the moral hazard problem with its compensation strategy. 
D)  Ed should quit this job and take a job where he gets paid an equilibrium wage more frequently.

Question 5

The Condorcet voting paradox applies to situations in which voters

Accepted Answer

A)  decide between exactly two possible outcomes. 
B)  decide among more than two possible outcomes. 
C)  as a group have transitive preferences. 
D)  choose the inferior candidate even though the majority preferred the better candidate. 
A)  decide between exactly two possible outcomes. 
B)  decide among more than two possible outcomes. 
C)  as a group have transitive preferences. 
D)  choose the inferior candidate even though the majority preferred the better candidate.

Question 6

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 $600 per person or $800 per person,the median voter will vote to spend

Accepted Answer

A)  $600 per person and the voting outcome will be $600 per person. 
B)  $600 per person and the voting outcome will be $800 per person. 
C)  $800 per person and the voting outcome will be $600 per person. 
D)  $800 per person and the voting outcome will be $800 per person. 
A)  $600 per person and the voting outcome will be $600 per person. 
B)  $600 per person and the voting outcome will be $800 per person. 
C)  $800 per person and the voting outcome will be $600 per person. 
D)  $800 per person and the voting outcome will be $800 per person.

Question 7

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 D?

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

Question 8

Government action in cases of asymmetric information may not be an ideal solution because

Accepted Answer

A)  the private market can sometimes deal with information asymmetries on its own. 
B)  the government tends to have more information than private parties. 
C)  both (a)and (b). 
D)  None of the above is correct. 
A)  the private market can sometimes deal with information asymmetries on its own. 
B)  the government tends to have more information than private parties. 
C)  both (a)and (b). 
D)  None of the above is correct.

Question 9

Most economic models

Accepted Answer

A)  incorporate the assumption of rational behavior on the part of economic actors. 
B)  incorporate the notion that people are usually reluctant to change their minds. 
C)  are meant to precisely duplicate reality. 
D)  assume that people often make sub-optimal choices. 
A)  incorporate the assumption of rational behavior on the part of economic actors. 
B)  incorporate the notion that people are usually reluctant to change their minds. 
C)  are meant to precisely duplicate reality. 
D)  assume that people often make sub-optimal choices.

Question 10

Which of the following statements is correct?

Accepted Answer

A)  Hidden actions and hidden characteristics are both associated with the moral-hazard problem. 
B)  Hidden actions and hidden characteristics are both associated with the adverse-selection problem. 
C)  Hidden actions are associated with the moral-hazard problem,whereas hidden characteristics are associated with the adverse-selection problem. 
D)  Hidden actions are associated with the adverse-selection problem,whereas hidden characteristics are associated with the moral-hazard problem. 
A)  Hidden actions and hidden characteristics are both associated with the moral-hazard problem. 
B)  Hidden actions and hidden characteristics are both associated with the adverse-selection problem. 
C)  Hidden actions are associated with the moral-hazard problem,whereas hidden characteristics are associated with the adverse-selection problem. 
D)  Hidden actions are associated with the adverse-selection problem,whereas hidden characteristics are associated with the moral-hazard problem.

Question 11

John goes to work 8 hours per day,but while he is at work he spends most of his time visiting internet sites that provide him with information on his favorite hobby.This is an example of

Accepted Answer

A)  the Condorcet Paradox. 
B)  signaling. 
C)  moral hazard. 
D)  screening. 
A)  the Condorcet Paradox. 
B)  signaling. 
C)  moral hazard. 
D)  screening.

Question 12

Studies of human decision making have found that people are reluctant to change their minds.

Accepted Answer

A) True 
 B)False

Question 13

The criminal actions of the top managers of corporations such as Enron,Tyco,WorldCom,and Adelphia are an example of moral hazard.

Accepted Answer

A) True 
 B)False

Question 14

Brian and Andrea are playing the ultimatum game,starting with $100.The coin flip results in Brian being the one to propose a division of the $100.Brian proposes that he gets $99 and Andrea gets $1.

Accepted Answer

A)  Because the 99-1 split isn't fair,Brian should not make this offer. 
B)  Conventional economic theory predicts that Brian will propose a 99-1 split,just as he did. 
C)  Experimental evidence suggests that Andrea will accept the 99-1 split because,even though it isn't fair,it's better than nothing. 
D)  Economic theory predicts that Brian should choose a 60-40 split to maximize his payoff. 
A)  Because the 99-1 split isn't fair,Brian should not make this offer. 
B)  Conventional economic theory predicts that Brian will propose a 99-1 split,just as he did. 
C)  Experimental evidence suggests that Andrea will accept the 99-1 split because,even though it isn't fair,it's better than nothing. 
D)  Economic theory predicts that Brian should choose a 60-40 split to maximize his payoff.

Question 15

Suppose that an economics professor selects two students,Rudy and Rhonda,to participate in a classroom experiment.The professor gives Rudy ten $1 bills.Rudy must pick an allocation of the ten $1 bills to offer to Rhonda.If Rhonda accepts the allocation,each student keeps his or her portion of the money.If Rhonda rejects the allocation,the professor keeps the $10,and each student receives nothing.Rudy selects $9 for himself and $1 for Rhonda.Based on the studies of human decision making,which of the following statements is correct?

Accepted Answer

A)  If Rhonda accepts the offer,she is behaving rationally. 
B)  If Rhonda rejects the offer,she may value fairness more than $1. 
C)  If Rhonda rejects the offer,Rudy made a bad choice by trying to keep $9 for himself. 
D)  Any of the above could be correct. 
A)  If Rhonda accepts the offer,she is behaving rationally. 
B)  If Rhonda rejects the offer,she may value fairness more than $1. 
C)  If Rhonda rejects the offer,Rudy made a bad choice by trying to keep $9 for himself. 
D)  Any of the above could be correct.

Question 16

Kenneth Arrow proved that the voting system that satisfied all of the properties of his "perfect" voting system was

Accepted Answer

A)  one in which a single person (a "dictator")imposes his preferences on everyone else. 
B)  pairwise majority voting. 
C)  majority voting that is not pairwise. 
D)  None of the above is correct.Arrow proved that no voting system can satisfy all of the properties of his "perfect" system. 
A)  one in which a single person (a "dictator")imposes his preferences on everyone else. 
B)  pairwise majority voting. 
C)  majority voting that is not pairwise. 
D)  None of the above is correct.Arrow proved that no voting system can satisfy all of the properties of his "perfect" system.

Question 17

When economists assume that people are rational,they assume that

Accepted Answer

A)  consumers maximize profits. 
B)  firms maximize revenues. 
C)  consumers maximize utility. 
D)  firms maximize output. 
A)  consumers maximize profits. 
B)  firms maximize revenues. 
C)  consumers maximize utility. 
D)  firms maximize output.

Question 18

Which of the following is not an example of a principal-agent relationship?

Accepted Answer

A)  a soccer player and her coach 
B)  a man and his neighbor 
C)  an construction worker and his foreman 
D)  a driver and her insurance agent 
A)  a soccer player and her coach 
B)  a man and his neighbor 
C)  an construction worker and his foreman 
D)  a driver and her insurance agent

Question 19

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 22-1.Which of the following statements is correct?

Accepted Answer

A)  In a pairwise election,"beach" beats "movie." 
B)  In a pairwise election,"museum" beats "beach." 
C)  In a pairwise election,"movie" beats "museum." 
D)  All of the above are correct. 
A)  In a pairwise election,"beach" beats "movie." 
B)  In a pairwise election,"museum" beats "beach." 
C)  In a pairwise election,"movie" beats "museum." 
D)  All of the above are correct.

Question 20

Signaling is an action taken by an uninformed party to induce an informed party to reveal information.

Accepted Answer

A) True 
 B)False

Exam 22: Frontiers of Microeconomics

Conventional economic theory assumes that people

Assume there are two major political parties: the Conservatives and the Liberals.What does the median voter theorem imply about the nature of the platforms (that is,policy stances)of the Conservatives and Liberals?

Adverse selection is

The Condorcet voting paradox applies to situations in which voters

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 D?

Government action in cases of asymmetric information may not be an ideal solution because

Most economic models

Which of the following statements is correct?

John goes to work 8 hours per day,but while he is at work he spends most of his time visiting internet sites that provide him with information on his favorite hobby.This is an example of

Studies of human decision making have found that people are reluctant to change their minds.

The criminal actions of the top managers of corporations such as Enron,Tyco,WorldCom,and Adelphia are an example of moral hazard.

Brian and Andrea are playing the ultimatum game,starting with $100.The coin flip results in Brian being the one to propose a division of the $100.Brian proposes that he gets $99 and Andrea gets $1.

Kenneth Arrow proved that the voting system that satisfied all of the properties of his "perfect" voting system was

When economists assume that people are rational,they assume that

Which of the following is not an example of a principal-agent relationship?

Signaling is an action taken by an uninformed party to induce an informed party to reveal information.

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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