Question 1

Moral hazard occurs when

Accepted Answer

A)  an employer closely monitors an employee. 
B)  two people consider a trade with each other and one person has relevant information about some aspect of the product's quality that the other person lacks. 
C)  an employee lacks an incentive to promote the best interests of the employer, and the employer cannot observe the actions of the employee. 
D)  an employee closely monitors the actions of her employer. 
A)  an employer closely monitors an employee. 
B)  two people consider a trade with each other and one person has relevant information about some aspect of the product's quality that the other person lacks. 
C)  an employee lacks an incentive to promote the best interests of the employer, and the employer cannot observe the actions of the employee. 
D)  an employee closely monitors the actions of her employer. C

Question 2

Scenario 22-6
Shana owns a boutique that sells high­end women's clothing and accessories. Katie works part-time at the boutique and frequently is the only employee in this small store. Shana pays Katie a wage that is higher than the market wage for this type of job. When the store is not full of customers, Katie diligently works on displays and cleans to keep the store looking its best. Belinda is a customer in the store who asks Katie's opinion on the quality of some jeans she is considering purchasing. Katie tells her the quality is great even though she's had several other customers return them due to flaws. Magda is another customer who is returning a necklace without volunteering that a gem is missing.
-Refer to Scenario 22-6. What is the term for the type of wage Shana pays Katie?

Accepted Answer

efficiency wage

Question 3

Table 22-21
The following table shows the number of voters preferring various amounts of spending to develop a river to make it more attractive for canoeing and kayaking.  
-Refer to Table 22-21. Suppose the voters are asked to choose between $1 million and $2.5 million. If all voters cast a vote for the spending amount closest to their own preference, how many votes will the $1 million spending amount receive?

Accepted Answer

A)  25 
B)  47 
C)  72 
D)  102 
A)  25 
B)  47 
C)  72 
D)  102 B

Question 4

Peter 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. Which of the following is a strategy the consulting firm may employ to discourage Peter from shirking his responsibilities?

Accepted Answer

A)  Tell Peter that the shareholders want to earn a large profit this year. 
B)  Pay Peter commissions on what he sells after the work has been completed. 
C)  Allow Peter to set his own schedule and work from home frequently. 
D)  Pay Peter a lower wage than he would earn in a similar job at another firm. 
A)  Tell Peter that the shareholders want to earn a large profit this year. 
B)  Pay Peter commissions on what he sells after the work has been completed. 
C)  Allow Peter to set his own schedule and work from home frequently. 
D)  Pay Peter a lower wage than he would earn in a similar job at another firm.

Question 5

Table 22-8
The citizens of Mayville are having a severe budget shortage and are faced with eliminating athletics from the town high school. The town administrator has determined that the town can afford to maintain one sport. 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.
Voter Type  
-Refer to Table 22-8. If the town administrator first asks the citizens to vote for hockey or basketball and then asks them to choose between the winner of the first vote and football, what will be the outcome?

Accepted Answer

A)  Hockey will win the first vote and hockey will win the second vote. 
B)  Hockey will win the first vote and football will win the second vote. 
C)  Basketball will win the first vote and basketball will win the second vote. 
D)  Basketball will win the first vote and football will win the second vote. 
A)  Hockey will win the first vote and hockey will win the second vote. 
B)  Hockey will win the first vote and football will win the second vote. 
C)  Basketball will win the first vote and basketball will win the second vote. 
D)  Basketball will win the first vote and football will win the second vote.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

In his 1951 book, Social Choice and Individual Values, Kenneth Arrow defined a "perfect" voting system. That system includes which of the following features?

Accepted Answer

A)  unanimity 
B)  transitivity 
C)  absence of a dictator 
D)  All of the above are correct. 
A)  unanimity 
B)  transitivity 
C)  absence of a dictator 
D)  All of the above are correct.

Question 8

When a jeweler sells a low quality diamond to a young man who believes the diamond is the highest quality, she is engaging in

Accepted Answer

A)  both moral hazard and adverse selection. 
B)  neither moral hazard nor adverse selection. 
C)  moral hazard, but not adverse selection. 
D)  adverse selection, but not moral hazard. 
A)  both moral hazard and adverse selection. 
B)  neither moral hazard nor adverse selection. 
C)  moral hazard, but not adverse selection. 
D)  adverse selection, but not moral hazard.

Question 9

Scenario 22-5
A wireless telephone service provider offers three service plans to its consumers.  
-Refer to Scenario 22-5. By offering consumers these choices and allowing them to select the plan that best meets their needs, the wireless service provider is engaging in

Accepted Answer

The answer of Scenario 22-5
A wireless telephone service provider offers...

Question 10

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 11

Table 22-11
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 22-11. The town administrator would much rather have more tax revenue than have to cut any programs or services. If he wants to ensure that winning choice from voting is increasing taxes, how should he set up the voting?

Accepted Answer

A)  First vote: taxes vs. streetlights; Second vote: winner of the first vote vs. police; Third vote: winner of the second vote vs. arts 
B)  First vote: arts vs. streetlights; Second vote: winner of the first vote vs. police; Third vote: winner of the second vote vs. taxes 
C)  First vote: police vs. taxes; Second vote: winner of the first vote vs. arts; Third vote: winner of the second vote vs. streetlights 
D)  The town administrator should use a Borda count. 
A)  First vote: taxes vs. streetlights; Second vote: winner of the first vote vs. police; Third vote: winner of the second vote vs. arts 
B)  First vote: arts vs. streetlights; Second vote: winner of the first vote vs. police; Third vote: winner of the second vote vs. taxes 
C)  First vote: police vs. taxes; Second vote: winner of the first vote vs. arts; Third vote: winner of the second vote vs. streetlights 
D)  The town administrator should use a Borda count.

Question 12

An implication of the median voter theorem is that

Accepted Answer

A)  minority views and majority views are given equal weight. 
B)  platforms of the major political parties will not differ greatly. 
C)  the logic of democracy is fundamentally flawed. 
D)  behavioral economics plays a significant role in voting outcomes. 
A)  minority views and majority views are given equal weight. 
B)  platforms of the major political parties will not differ greatly. 
C)  the logic of democracy is fundamentally flawed. 
D)  behavioral economics plays a significant role in voting outcomes.

Question 13

Scenario 22-3
At issue in a particular city vote is how much to spend, per person, on road repair next year. Among the 10,000 voters, 2,900 prefer to spend $500 per person, but no more; 2,200 prefer to spend $600 per person, but no more; 1,900 prefer to spend $800 per person, but no more; 1,600 prefer to spend $1,200 but no more, and 1,400 prefer to spend $1,400 per person, but no more.
-Refer to Scenario 22-3. 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)  $800 per person and the voting outcome will be $800 per person. 
B)  $800 per person and the voting outcome will be $600 per person. 
C)  $600 per person and the voting outcome will be $800 per person. 
D)  $600 per person and the voting outcome will be $600 per person. 
A)  $800 per person and the voting outcome will be $800 per person. 
B)  $800 per person and the voting outcome will be $600 per person. 
C)  $600 per person and the voting outcome will be $800 per person. 
D)  $600 per person and the voting outcome will be $600 per person.

Question 14

Bill and Bev are playing the ultimatum game, starting with $50. A coin flip results in Bev being the one to propose a division of the $50. If Bev acts as economic theory assumes, she should propose that

Accepted Answer

A)  she gets $30 and Bill gets $20. 
B)  she gets $25 and Bill gets $25. 
C)  she gets $24 and Bill gets $26. 
D)  she gets $49 and Bill gets $1. 
A)  she gets $30 and Bill gets $20. 
B)  she gets $25 and Bill gets $25. 
C)  she gets $24 and Bill gets $26. 
D)  she gets $49 and Bill gets $1.

Question 15

The field of economics in which the tools of economics are used to understand the functioning of government is

Accepted Answer

The answer of The field of economics in which the...

Question 16

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 17

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 18

Scott's Painting Company paints houses. Since Scott's business does not have the name recognition of some of the bigger painting companies, Scott advertises a "Five-Year Money Back Guarantee" to indicate to buyers that his service is of high quality. This guarantee is an example of

Accepted Answer

A)  screening. 
B)  signaling. 
C)  the seller's curse. 
D)  the principal-agent problem. 
A)  screening. 
B)  signaling. 
C)  the seller's curse. 
D)  the principal-agent problem.

Question 19

Assume there are nine voters in a certain small town and let x = the preferred number of dollars spent per person per month on garbage collection. For Voters 1, 2, and 3, x = $10; for Voter 4, x = $15; for Voter 5, x = $18; and for Voters 6, 7, 8 and 9, x = $20. Based on these preferences, which of these dollar amounts will win over any one of the others?

Accepted Answer

A)  $10. 
B)  $15. 
C)  $18 
D)  $20. 
A)  $10. 
B)  $15. 
C)  $18 
D)  $20.

Question 20

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.

Exam 22: Frontiers of Microeconomics

Moral hazard occurs when

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

In his 1951 book, Social Choice and Individual Values, Kenneth Arrow defined a "perfect" voting system. That system includes which of the following features?

When a jeweler sells a low quality diamond to a young man who believes the diamond is the highest quality, she is engaging in

Scenario 22-5 A wireless telephone service provider offers three service plans to its consumers. -Refer to Scenario 22-5. By offering consumers these choices and allowing them to select the plan that best meets their needs, the wireless service provider is engaging in

Economists use basic psychological insights in the field of study called

An implication of the median voter theorem is that

Bill and Bev are playing the ultimatum game, starting with $50. A coin flip results in Bev being the one to propose a division of the $50. If Bev acts as economic theory assumes, she should propose that

The field of economics in which the tools of economics are used to understand the functioning of government is

When economists assume that people are rational, they assume that

The ultimatum game reveals that

Scott's Painting Company paints houses. Since Scott's business does not have the name recognition of some of the bigger painting companies, Scott advertises a "Five-Year Money Back Guarantee" to indicate to buyers that his service is of high quality. This guarantee is an example of

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

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

Six Debates Over Macroeconomic Policy

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