Question 1

Jane spends 85% of her income each year, even though she knows she should be saving 20% for retirement. Jane's behavior indicates that her behavior tends to be

Accepted Answer

A)  irrational. 
B)  inconsistent over time. 
C)  satisficing rather than maximizing. 
D)  undefined. 
A)  irrational. 
B)  inconsistent over time. 
C)  satisficing rather than maximizing. 
D)  undefined.

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 name for the problem Katie creates by lying about the quality of the jeans?

Accepted Answer

The answer of Scenario 22-6
Shana owns a boutique that sells...

Question 3

In economics, a difference in access to relevant knowledge is called a(n)

Accepted Answer

A)  relevancy frontier. 
B)  knowledge gap. 
C)  information asymmetry. 
D)  information equilibrium. 
A)  relevancy frontier. 
B)  knowledge gap. 
C)  information asymmetry. 
D)  information equilibrium.

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 new company making high quality bicycles at a reasonable price sends free bikes to reviewers working for bicycle magazines. 
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 new company making high quality bicycles at a reasonable price sends free bikes to reviewers working for bicycle magazines. 
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

A "satisficer" is a person who

Accepted Answer

A)  always chooses the best course of action. 
B)  often chooses the worst course of action. 
C)  makes decisions that are merely good enough. 
D)  studies both economics and psychology. 
A)  always chooses the best course of action. 
B)  often chooses the worst course of action. 
C)  makes decisions that are merely good enough. 
D)  studies both economics and psychology.

Question 6

According to behavioral economics, participants in a half-marathon are likely to have trained

Accepted Answer

A)  more than they planned and run faster than they anticipated. 
B)  more than they planned but run slower than they anticipated. 
C)  less than they planned and run slower than they anticipated. 
D)  less than they planned but run faster than they anticipated. 
A)  more than they planned and run faster than they anticipated. 
B)  more than they planned but run slower than they anticipated. 
C)  less than they planned and run slower than they anticipated. 
D)  less than they planned but run faster than they anticipated.

Question 7

The state of Massachusetts requires all citizens to purchase medical insurance or face a monetary penalty when filing their taxes. The penalty is significantly less than the average annual insurance premium. Moreover, the state requires insurance companies to issue policies to anyone who applies, regardless of their health at the time of application. Which of the following examples describes the inherent adverse selection problem?

Accepted Answer

A)  Tricia purchases an insurance policy through her employer and visits her doctor for annual check-ups. 
B)  Sue purchases insurance only after learning that she has cancer. 
C)  Mike pays the penalty rather than purchasing insurance because it is cheaper for him than paying insurance premiums and he is generally in good health. 
D)  Both b and c are correct. 
A)  Tricia purchases an insurance policy through her employer and visits her doctor for annual check-ups. 
B)  Sue purchases insurance only after learning that she has cancer. 
C)  Mike pays the penalty rather than purchasing insurance because it is cheaper for him than paying insurance premiums and he is generally in good health. 
D)  Both b and c are correct.

Question 8

Asymmetric information

Accepted Answer

A)  is not an area of current research in economics. 
B)  can take the form of a hidden action or a hidden characteristic. 
C)  explains Arrow's impossibility theorem. 
D)  is uncommon in corporate management. 
A)  is not an area of current research in economics. 
B)  can take the form of a hidden action or a hidden characteristic. 
C)  explains Arrow's impossibility theorem. 
D)  is uncommon in corporate management.

Question 9

Refer to Narrative 22-1. Which of the ladies is a principal?

Accepted Answer

A)  Shana 
B)  Katie 
C)  Belinda 
D)  Magda 
A)  Shana 
B)  Katie 
C)  Belinda 
D)  Magda

Question 10

Table 22-4
The fortunate residents of Anytown have a budget surplus. The mayor decided that it is only fair to have the residents vote on what to do with the surplus. The mayor has narrowed the options down to three possible projects: a playground, a library, or a swimming pool. The voters fall into three categories and have preferences as illustrated in the table.  
-Refer to Table 22-4. If the mayor asks the residents to choose between the playground and the library using pairwise voting,

Accepted Answer

A)  the playground wins by 45%. 
B)  the playground wins by 60%. 
C)  the library wins by 20%. 
D)  the library wins by 80%. 
A)  the playground wins by 45%. 
B)  the playground wins by 60%. 
C)  the library wins by 20%. 
D)  the library wins by 80%.

Question 11

The Borda count fails to satisfy which of Kenneth Arrow's properties of a "perfect" voting system?

Accepted Answer

A)  no dictator 
B)  unanimity 
C)  transitivity 
D)  independence of irrelevant alternatives 
A)  no dictator 
B)  unanimity 
C)  transitivity 
D)  independence of irrelevant alternatives

Question 12

Which of the following is an example of screening?

Accepted Answer

A)  A lender checks a loan applicants credit history. 
B)  When an employee purchases group life insurance without taking a physical exam, she knows more about her health than does the insurance company. 
C)  When someone is considering buying a used car from a dealership, the seller knows the repair history of the car but the potential buyer does not. 
D)  All of the above are correct. 
A)  A lender checks a loan applicants credit history. 
B)  When an employee purchases group life insurance without taking a physical exam, she knows more about her health than does the insurance company. 
C)  When someone is considering buying a used car from a dealership, the seller knows the repair history of the car but the potential buyer does not. 
D)  All of the above are correct.

Question 13

Assume there are 4065 voters in a certain small town and let x = the preferred number of dollars charged monthly to support local parks. For Voters 1-1050, x = $10; for voters 1051-2121, x= $20, for voters 2122-3334, x = $30; for voters 3335-3998, x = $40; and for 3999-4065, x = $50. Based on these preferences, which of the dollar amounts will win over any of the others?

Accepted Answer

A)  $20. 
B)  $30. 
C)  $50. 
D)  None of the above are correct. 
A)  $20. 
B)  $30. 
C)  $50. 
D)  None of the above are correct.

Question 14

Scenario 22-4
Three members of the DiCarlo family, Vinny, Maria, and Franki, are choosing the entree for a large family reunion. Their options are: spaghetti, ravioli, lasagne, and pizza. Vinny prefers spaghetti over lasagne, lasagne over ravioli, and ravioli over pizza. Maria prefers ravioli over spaghetti, spaghetti over pizza, and pizza over lasagne. Frankie prefers pizza over ravioli, ravioli over lasagne, and lasagne over spaghetti.
-Refer to Scenario 22-4. If, before any votes were cast, ravioli was eliminated from the choices, the median voter's first choice would be

Accepted Answer

A)  pizza. 
B)  spaghetti 
C)  lasagne. 
D)  There is not enough information to answer this question. 
A)  pizza. 
B)  spaghetti 
C)  lasagne. 
D)  There is not enough information to answer this question.

Question 15

Martha routinely has her prescriptions filled at her local SVC pharmacy. Each time that Martha goes to pick up a prescription, there is some problem and Martha has to return to the pharmacy later to get the prescription. Martha finds these return trips very annoying and time-consuming, but continues to request that her doctor send her prescriptions to this pharmacy even though there are several other options in her town. Which of the following is correct?

Accepted Answer

A)  Economists would say that Martha is behaving rationally. 
B)  Martha's behavior appears to exhibit inertia. 
C)  Martha's behavior is inconsistent over time. 
D)  Martha gives too much weight to a small number of vivid observations. 
A)  Economists would say that Martha is behaving rationally. 
B)  Martha's behavior appears to exhibit inertia. 
C)  Martha's behavior is inconsistent over time. 
D)  Martha gives too much weight to a small number of vivid observations.

Question 16

The median-voter theorem explains why

Accepted Answer

A)  politicians take extreme stands on issues. 
B)  voters are attracted to political outsiders. 
C)  two opposing politicians tend to take opposite sides of each issues. 
D)  politicians tend to take middle-of-the-road positions. 
A)  politicians take extreme stands on issues. 
B)  voters are attracted to political outsiders. 
C)  two opposing politicians tend to take opposite sides of each issues. 
D)  politicians tend to take middle-of-the-road positions.

Question 17

Table 22-25
Sophie, Huan, and Santiago are lost with no map or GPS available. They come to an intersection at which they can turn left, turn right, or continue going straight. Their preferences are summarized in the table.  
-Refer to Table 22-25. The travelers decide to conduct pairwise voting with the majority determining the outcome of each vote to decide their next move. If they first choose between going left and going straight, and then choose between the winner of the first vote and going right, which direction will they go?

Accepted Answer

The answer of Table 22-25
Sophie, Huan, and Santiago are lost...

Question 18

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. If the vote were conducted according to a Borda count system where each person's first choice receives 4 points, second choice 3 points, third choice 2 points and fourth choice 1 point, the result would be

Accepted Answer

A)  that A would win. 
B)  that B would win. 
C)  that C would win. 
D)  a tie between A and D. 
A)  that A would win. 
B)  that B would win. 
C)  that C would win. 
D)  a tie between A and D.

Question 19

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 20

Explain how the presence of asymmetric information in car insurance markets may lead people who are good drivers or even average drivers to choose not to buy car insurance unless the law requires it.

Accepted Answer

Drivers (buyers and potential buyers of

Exam 22: Frontiers of Microeconomics

Jane spends 85% of her income each year, even though she knows she should be saving 20% for retirement. Jane's behavior indicates that her behavior tends to be

In economics, a difference in access to relevant knowledge is called a(n)

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

A "satisficer" is a person who

According to behavioral economics, participants in a half-marathon are likely to have trained

Asymmetric information

Refer to Narrative 22-1. Which of the ladies is a principal?

The Borda count fails to satisfy which of Kenneth Arrow's properties of a "perfect" voting system?

Which of the following is an example of screening?

The median-voter theorem explains why

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

Explain how the presence of asymmetric information in car insurance markets may lead people who are good drivers or even average drivers to choose not to buy car insurance unless the law requires it.

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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