Question 1

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 2

Lindsay and Tim are playing the ultimatum game starting with $100. Based on the coin toss, Lindsay is the player to propose a division of the $100. If Lindsay acts as economic theory assumes, she should propose that

Accepted Answer

she gets $

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. The city council is considering two alternative ballots. The first would allow voters to choose between $1.5 million and $2 million. The second would allow voters to select between $2 million and $2.5 million. If the first ballot is used,

Accepted Answer

A)  voters will select $1.5 million. If the second ballot is used voters will select $2 million. 
B)  voters will select $1.5 million. If the second ballot is used voters will select $2.5 million. 
C)  voters will select $2 million. If the second ballot is used voters will select $2 million. 
D)  voters will select $2 million. If the second ballot is used voters will select $2.5 million 
A)  voters will select $1.5 million. If the second ballot is used voters will select $2 million. 
B)  voters will select $1.5 million. If the second ballot is used voters will select $2.5 million. 
C)  voters will select $2 million. If the second ballot is used voters will select $2 million. 
D)  voters will select $2 million. If the second ballot is used voters will select $2.5 million

Question 4

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 3, and 4, x = $10; for Voter 5, x = $15; for Voter , x = $18; and for Voters 6, 7, 8 and 9, x = $20. The median voter is

Accepted Answer

A)  Voter 3. 
B)  Voter 4. 
C)  Voter 5. 
D)  Voter 6. 
A)  Voter 3. 
B)  Voter 4. 
C)  Voter 5. 
D)  Voter 6.

Question 5

A community has five voters who are interested in only one issue: the government's spending on local parks. If Andre would like the government to spend $12,000 on parks, Brandon prefers $7,000, Charlene prefers $4,000, Dennis prefers $2,000, and Ernie prefers $0, how much spending would a politician seeking to win the election select when running against one opponent?

Accepted Answer

A)  $2,000 
B)  $4,000 
C)  $7,000 
D)  $12,000 
A)  $2,000 
B)  $4,000 
C)  $7,000 
D)  $12,000

Question 6

Which of the following is an example of asymmetric information?

Accepted Answer

A)  When someone is applying for a job, the employer checks references to determine the previous work habits of the applicant. 
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 potential buyer requests documentation of the repair history of the car. 
D)  All of the above are correct. 
A)  When someone is applying for a job, the employer checks references to determine the previous work habits of the applicant. 
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 potential buyer requests documentation of the repair history of the car. 
D)  All of the above are correct.

Question 7

Economic policy that appears to be ideal in an economics textbook may not be the final policy that is approved by elected politicians because

Accepted Answer

A)  sometimes a politician's self interest may conflict with the national interest. 
B)  economics professors have a notoriously low voting rate. 
C)  only policies advocated by the President's Council of Economic Advisors receive enough national attention to interest politicians. 
D)  Economists cannot explain why politicians do not implement the ideas from their textbooks. 
A)  sometimes a politician's self interest may conflict with the national interest. 
B)  economics professors have a notoriously low voting rate. 
C)  only policies advocated by the President's Council of Economic Advisors receive enough national attention to interest politicians. 
D)  Economists cannot explain why politicians do not implement the ideas from their textbooks.

Question 8

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 9

Which of the following is an example of satisficing behavior?

Accepted Answer

A)  You continue studying for your economics exam until you believe you'll get a score that's good enough. 
B)  You spend time looking over the lettuce at the grocery store in order to make sure you get the best head of lettuce. 
C)  You clean your room to the point where you think it's clean enough that further time can be used for more productive purposes. 
D)  You carefully plan your day in order to get "the most out of life." 
A)  You continue studying for your economics exam until you believe you'll get a score that's good enough. 
B)  You spend time looking over the lettuce at the grocery store in order to make sure you get the best head of lettuce. 
C)  You clean your room to the point where you think it's clean enough that further time can be used for more productive purposes. 
D)  You carefully plan your day in order to get "the most out of life."

Question 10

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 modified Borda count system where each person's first choice receives 10 points, second choice 5 points, third choice 3 points and fourth choice 1 point, the result would be that

Accepted Answer

A)  A would win. 
B)  B would win. 
C)  C would win. 
D)  D would win. 
A)  A would win. 
B)  B would win. 
C)  C would win. 
D)  D would win.

Question 11

Adverse selection may lead to

Accepted Answer

A)  owners of used cars choosing to keep them rather than sell them at the low price that skeptical buyers are willing to pay. 
B)  wages being stuck above the level that balances supply and demand, resulting in unemployment. 
C)  buyers with low risk choosing to remain uninsured because the policies they are offered fail to reflect their true characteristics. 
D)  All of the above are correct. 
A)  owners of used cars choosing to keep them rather than sell them at the low price that skeptical buyers are willing to pay. 
B)  wages being stuck above the level that balances supply and demand, resulting in unemployment. 
C)  buyers with low risk choosing to remain uninsured because the policies they are offered fail to reflect their true characteristics. 
D)  All of the above are correct.

Question 12

Table 22-18
The following table shows the preferences of four types of voters over four possible alternatives as well as the percentage of the electorate with the given preferences.  
-Refer to Table 22-18. Suppose before any voting takes place that alternative W is eliminated as an option. If the voters first choose between alternatives X and Y in a majority vote, with the winner of that vote going against option Z in a majority vote, which alternative would win?

Accepted Answer

A)  X 
B)  Y 
C)  Z 
D)  There would be no clear winner - alternatives X and Y would tie. 
A)  X 
B)  Y 
C)  Z 
D)  There would be no clear winner - alternatives X and Y would tie.

Question 13

Table 22-18
The following table shows the preferences of four types of voters over four possible alternatives as well as the percentage of the electorate with the given preferences.  
-Refer to Table 22-18. In a majority vote between alternatives W and X, what percentage of the votes would W receive?

Accepted Answer

A)  35% 
B)  45% 
C)  55% 
D)  65% 
A)  35% 
B)  45% 
C)  55% 
D)  65%

Question 14

Table 22-16
The Johnson family is planning a vacation and, though Mr. and Mrs. Johnson will be paying for the trip, they have decided to use a democratic voting process to choose their destination. The family members' preferences are reflected in the table below.  
-Refer to Table 22-16. If Mr. Johnson wants to ensure that his 1st choice becomes the family's winning destination, he should propose

Accepted Answer

A)  using a vote by majority rule and first choosing between Opryland and the Grand Canyon, then choosing between the winner of the first vote and Sea World, and finally choosing between the winner of the second vote and Disneyland. 
B)  using a vote by majority rule and first choosing between Disneyland and Sea World, then choosing between the winner of the first vote and the Grand Canyon and finally choosing between the winner of the second vote and the Opryland. 
C)  using a vote by majority rule and first choosing between Sea World and the Grand Canyon, then choosing between the winner of the first vote and Disneyland, and finally choosing between the winner of the second vote and Opryland. 
D)  using a Borda count. 
A)  using a vote by majority rule and first choosing between Opryland and the Grand Canyon, then choosing between the winner of the first vote and Sea World, and finally choosing between the winner of the second vote and Disneyland. 
B)  using a vote by majority rule and first choosing between Disneyland and Sea World, then choosing between the winner of the first vote and the Grand Canyon and finally choosing between the winner of the second vote and the Opryland. 
C)  using a vote by majority rule and first choosing between Sea World and the Grand Canyon, then choosing between the winner of the first vote and Disneyland, and finally choosing between the winner of the second vote and Opryland. 
D)  using a Borda count.

Question 15

Economic theory assumes that voters, politicians, and other political participants are largely motivated by

Accepted Answer

A)  personal self-interest. 
B)  altruism. 
C)  a desire to promote the general welfare. 
D)  a desire to promote allocative economic efficiency. 
A)  personal self-interest. 
B)  altruism. 
C)  a desire to promote the general welfare. 
D)  a desire to promote allocative economic efficiency.

Question 16

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. 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)  Peter 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)  Peter 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)  Peter 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)  Peter should quit this job and take a job where he gets paid an equilibrium wage more frequently.

Question 17

The Latin term caveat emptor, meaning "let the buyer beware," brings to mind the problem of

Accepted Answer

A)  hidden actions. 
B)  adverse selection. 
C)  principals and agents. 
D)  moral hazard. 
A)  hidden actions. 
B)  adverse selection. 
C)  principals and agents. 
D)  moral hazard.

Question 18

Table 22-2
Three longtime friends-Allen, Brian, and Cody-are deciding how they will spend their Sunday afternoon. They all agree that they should do one of three things: go to a movie, play golf, or go to a baseball game. They also agree that they will have two pairwise votes to determine how to spend their afternoon, 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 22-2. If (1) the first vote pits "baseball game" against "movie," and (2) the second vote pits "golf" against the winner of the first vote, then the outcome is as follows:

Accepted Answer

A)  "Baseball game" wins the first vote and "baseball game" wins the second vote, so they go to a baseball game. 
B)  "Baseball game" wins the first vote and "golf" wins the second vote, so they go to the golf. 
C)  "Movie" wins the first vote and "movie" wins the second vote, so they go to a movie. 
D)  "Movie" wins the first vote and "golf" wins the second vote, so they play golf. 
A)  "Baseball game" wins the first vote and "baseball game" wins the second vote, so they go to a baseball game. 
B)  "Baseball game" wins the first vote and "golf" wins the second vote, so they go to the golf. 
C)  "Movie" wins the first vote and "movie" wins the second vote, so they go to a movie. 
D)  "Movie" wins the first vote and "golf" wins the second vote, so they play golf.

Question 19

Which of the following is a plausible explanation for a firm paying above-equilibrium wages to its workers?

Accepted Answer

A)  It increases the probability that a worker who shirks will be caught. 
B)  It discourages workers from shirking out of fear of losing their high-paying job. 
C)  The Condorcet Paradox suggests that paying high wages will result in greater effort by employees. 
D)  By paying a high wage, employers solve this adverse selection problem and motivate the employees to work harder. 
A)  It increases the probability that a worker who shirks will be caught. 
B)  It discourages workers from shirking out of fear of losing their high-paying job. 
C)  The Condorcet Paradox suggests that paying high wages will result in greater effort by employees. 
D)  By paying a high wage, employers solve this adverse selection problem and motivate the employees to work harder.

Question 20

Normally, we expect voters' preferences to exhibit a property called

Accepted Answer

A)  transitivity. 
B)  transversality. 
C)  normality. 
D)  universality. 
A)  transitivity. 
B)  transversality. 
C)  normality. 
D)  universality.

Exam 22: Frontiers of Microeconomics

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

Lindsay and Tim are playing the ultimatum game starting with $100. Based on the coin toss, Lindsay is the player to propose a division of the $100. If Lindsay acts as economic theory assumes, she should propose that

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 3, and 4, x = $10; for Voter 5, x = $15; for Voter , x = $18; and for Voters 6, 7, 8 and 9, x = $20. The median voter is

Which of the following is an example of asymmetric information?

Economic policy that appears to be ideal in an economics textbook may not be the final policy that is approved by elected politicians because

Adverse selection is

Which of the following is an example of satisficing behavior?

Adverse selection may lead to

Table 22-18 The following table shows the preferences of four types of voters over four possible alternatives as well as the percentage of the electorate with the given preferences. -Refer to Table 22-18. In a majority vote between alternatives W and X, what percentage of the votes would W receive?

Economic theory assumes that voters, politicians, and other political participants are largely motivated by

The Latin term caveat emptor, meaning "let the buyer beware," brings to mind the problem of

Which of the following is a plausible explanation for a firm paying above-equilibrium wages to its workers?

Normally, we expect voters' preferences to exhibit a property called

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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