Question 1

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 2

Table 22-3
Three family members -- Seamus, Maeve, and Siobhan -- are deciding what type of movie to attend. The three choices are an action adventure, comedy, or horror. The first, second, and third choices for each person are as indicated in the table below.  
-Refer to Table 22-3. Suppose the three decide to make the decision based on pairwise majority voting. If they first choose between Action and Comedy and then choose between the winner of the first vote and Horror, which movie alternative will win?

Accepted Answer

A)  Action 
B)  Comedy 
C)  Horror 
D)  There is no clear winner - Comedy and Horror will tie. 
A)  Action 
B)  Comedy 
C)  Horror 
D)  There is no clear winner - Comedy and Horror will tie.

Question 3

Table 22-6  
-Refer to Table 22-6. The table shows the preferences of 100 voters over three possible outcomes: A, B, and C. In pairwise majority voting in which voters choose first between A and B and then choose between the winner of the first vote and C,

Accepted Answer

A)  outcome A will win the election. 
B)  outcome B will win the election. 
C)  outcome C will win the election. 
D)  the outcome of the election cannot be determined with the given information. 
A)  outcome A will win the election. 
B)  outcome B will win the election. 
C)  outcome C will win the election. 
D)  the outcome of the election cannot be determined with the given information.

Question 4

Table 22-7
Suppose that residents of a town are asked to vote on the best way to improve the safety of an intersection. The three choices are: a stoplight, a 4-way stop, and a 2-way stop. The voters are divided into three groups based on their preferences.
Voter Type  
-Refer to Table 22-7. If the first vote pits a stoplight against a 4-way stop and the second vote pits a 2-way stop against the winner of the first vote, then the outcome is as follows:

Accepted Answer

A)  4-way stop wins the first vote and 4-way stop wins the second vote, so the town installs a 4-way stop. 
B)  4-way stop wins the first vote and 2-way stop wins the second vote, so the town installs a 2-way stop. 
C)  Stoplight wins the first vote and stoplight wins the second vote, so the town installs a stoplight. 
D)  Stoplight wins the first vote and 2-way stop wins the second vote, so the town installs a 2-way stop. 
A)  4-way stop wins the first vote and 4-way stop wins the second vote, so the town installs a 4-way stop. 
B)  4-way stop wins the first vote and 2-way stop wins the second vote, so the town installs a 2-way stop. 
C)  Stoplight wins the first vote and stoplight wins the second vote, so the town installs a stoplight. 
D)  Stoplight wins the first vote and 2-way stop wins the second vote, so the town installs a 2-way stop.

Question 5

According to behavioral economics if people taking an exam were asked to guess the score they would receive, it would be most likely that

Accepted Answer

A)  significantly more people would score below what they guessed than above what they guessed. 
B)  significantly more people would score above what they guessed than below what they guessed. 
C)  about the same number of people would score more than they guessed as scored less than they guessed. 
D)  people's scores would be pretty close to what they guessed. Further, any of the above would be equally likely. 
A)  significantly more people would score below what they guessed than above what they guessed. 
B)  significantly more people would score above what they guessed than below what they guessed. 
C)  about the same number of people would score more than they guessed as scored less than they guessed. 
D)  people's scores would be pretty close to what they guessed. Further, any of the above would be equally likely.

Question 6

Rick goes to work 8 hours per day, but while he is at work he spends most of his time visiting internet sites monitoring his fantasy football teams. 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 7

Which of the following statements is not correct?

Accepted Answer

A)  Based on studies of human decision making, most people value fairness. 
B)  Based on studies of human decision making, some people's preference are inconsistent over time. 
C)  Government intervention is the best remedy for the problems caused by asymmetric information. 
D)  Advertising can be an example of a company signaling the quality of its products. 
A)  Based on studies of human decision making, most people value fairness. 
B)  Based on studies of human decision making, some people's preference are inconsistent over time. 
C)  Government intervention is the best remedy for the problems caused by asymmetric information. 
D)  Advertising can be an example of a company signaling the quality of its products.

Question 8

Insurance companies charge annual premiums to collect revenue, which they then use to pay customers who file claims for damages they incur. Because of the moral hazard problem insurance companies separate customers into groups. Group 1: customers who file few claims & Group 2: customers that file a lot of claims. After creating these groups, what happens to the average annual premium within a group?

Accepted Answer

A)  Group 1: average annual premium increases Group 2: average annual premium increases 
B)  Group 1: average annual premium decreases Group 2: average annual premium increases 
C)  Group 1: average annual premium increases Group 2: average annual premium decreases 
D)  Group 1: average annual premium decreases Group 2: average annual premium decreases 
A)  Group 1: average annual premium increases Group 2: average annual premium increases 
B)  Group 1: average annual premium decreases Group 2: average annual premium increases 
C)  Group 1: average annual premium increases Group 2: average annual premium decreases 
D)  Group 1: average annual premium decreases Group 2: average annual premium decreases

Question 9

Table 22-14
Amy, Beth, and Connie are on a hiring committee. They have interviewed 3 candidates identified by their last names and are going to vote on which one is hired.  
-Refer to Table 22-14. Below are lists of results for two separate elections between two candidates. In which case are both results correct?

Accepted Answer

A)  Adams wins over Brown and Brown wins over Campbell 
B)  Adams wins over Brown and Campbell wins over Brown 
C)  Brown wins over Adams and Brown wins over Campbell 
D)  Brown wins over Adams and Campbell wins over Brown 
A)  Adams wins over Brown and Brown wins over Campbell 
B)  Adams wins over Brown and Campbell wins over Brown 
C)  Brown wins over Adams and Brown wins over Campbell 
D)  Brown wins over Adams and Campbell wins over Brown

Question 10

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. If the vote is conducted using a Borda count where each person's first choice receives 4 points, each person's second choice 3 points, each person's third choice 2 points, and each person's fourth choice 1 point, which alternative would win?

Accepted Answer

A)  W 
B)  X 
C)  Y 
D)  Z 
A)  W 
B)  X 
C)  Y 
D)  Z

Question 11

Economist Kenneth Arrow wrote a famous book in 1951 in which he took up the question,

Accepted Answer

A)  Is there a perfect voting system? 
B)  Are preferences transitive? 
C)  Is a dictatorship a good form of government? 
D)  Does Democracy work? 
A)  Is there a perfect voting system? 
B)  Are preferences transitive? 
C)  Is a dictatorship a good form of government? 
D)  Does Democracy work?

Question 12

In his 1951 book Social Choice and Individual Values, Arrow's perfect voting system satisfies all of the following properties except

Accepted Answer

A)  unanimity. 
B)  transitivity. 
C)  reflexivity. 
D)  independence of irrelevant alternatives. 
A)  unanimity. 
B)  transitivity. 
C)  reflexivity. 
D)  independence of irrelevant alternatives.

Question 13

A survey of 1,500 frequent restaurant patrons revealed that, Chang Cheng, a local Chinese restaurant, offers high- quality food at low prices. Based on one dining experience, a restaurant critic gave Chang Cheng a poor review, saying the food was not very good. As a result, you decide not to dine at Chang Cheng. This decision is an example of which of the following systematic mistakes that people make when making decisions?

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 are correct. 
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 are correct.

Question 14

The Condorcet voting paradox shows that outcomes based on dictatorial preferences do not always obey the property of transitivity.

Accepted Answer

A) True 
 B)False

Question 15

People tend to wait until deadlines get close to work on projects in part because they believe that they can complete the projects in less time than it will actually take. Which findings from behavioral economics is this observation consistent with?

Accepted Answer

A)  People tend to be time inconsistent and people tend to be overconfident. 
B)  People tend to be time inconsistent but not that people tend to be overconfident. 
C)  People tend to be overconfident, but not that people tend to be time inconsistent. 
D)  Neither that people tend to be overconfident nor that people tend to be time inconsistent. 
A)  People tend to be time inconsistent and people tend to be overconfident. 
B)  People tend to be time inconsistent but not that people tend to be overconfident. 
C)  People tend to be overconfident, but not that people tend to be time inconsistent. 
D)  Neither that people tend to be overconfident nor that people tend to be time inconsistent.

Question 16

Table 22-17
Voter Type  
-Refer to Table 22-17. The table shows the preferences for three types of voters over three possible outcomes: A, B, and C. The table also shows the percentage of voters of each type. Based on this information, which of the following statements is true?

Accepted Answer

A)  In a vote between B and C, C loses since only the Type 1 voters prefer C to B. 
B)  In a vote between A and B, B wins getting 85% of the total vote. 
C)  In a vote between A and C, C loses getting only 45% of the total vote. 
D)  Both a and B 
A)  In a vote between B and C, C loses since only the Type 1 voters prefer C to B. 
B)  In a vote between A and B, B wins getting 85% of the total vote. 
C)  In a vote between A and C, C loses getting only 45% of the total vote. 
D)  Both a and B

Question 17

In a vote between options A, B, and C, option C wins. When option B is eliminated and a vote is taken between option A and option C, option A wins. The voting system used fails to satisfy which of Arrow's properties of a desirable voting system?

Accepted Answer

A)  unanimity 
B)  transitivity 
C)  independence of irrelevant alternatives 
D)  No dictators 
A)  unanimity 
B)  transitivity 
C)  independence of irrelevant alternatives 
D)  No dictators

Question 18

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 19

Which of the following students exhibits satisficing behavior?

Accepted Answer

A)  Mick studies his economics notes every night so that he can be sure to earn a perfect score on his exam. 
B)  Bill studies his economics notes for a few hours the night before the test because he will be satisfied with a C on his exam. 
C)  Marguerite studies extensively as she will only be satisfied with a very high score. 
D)  None of these students exhibits satisficing behavior. 
A)  Mick studies his economics notes every night so that he can be sure to earn a perfect score on his exam. 
B)  Bill studies his economics notes for a few hours the night before the test because he will be satisfied with a C on his exam. 
C)  Marguerite studies extensively as she will only be satisfied with a very high score. 
D)  None of these students exhibits satisficing behavior.

Question 20

If the seller of a used car offers a limited warranty, the warranty is an example of a(n)

Accepted Answer

A)  signal. 
B)  screen. 
C)  efficiency wage. 
D)  agent. 
A)  signal. 
B)  screen. 
C)  efficiency wage. 
D)  agent.

Exam 22: Frontiers of Microeconomics

Most economic models

Table 22-6 -Refer to Table 22-6. The table shows the preferences of 100 voters over three possible outcomes: A, B, and C. In pairwise majority voting in which voters choose first between A and B and then choose between the winner of the first vote and C,

According to behavioral economics if people taking an exam were asked to guess the score they would receive, it would be most likely that

Rick goes to work 8 hours per day, but while he is at work he spends most of his time visiting internet sites monitoring his fantasy football teams. This is an example of

Which of the following statements is not correct?

Economist Kenneth Arrow wrote a famous book in 1951 in which he took up the question,

In his 1951 book Social Choice and Individual Values, Arrow's perfect voting system satisfies all of the following properties except

The Condorcet voting paradox shows that outcomes based on dictatorial preferences do not always obey the property of transitivity.

People tend to wait until deadlines get close to work on projects in part because they believe that they can complete the projects in less time than it will actually take. Which findings from behavioral economics is this observation consistent with?

Table 22-17 Voter Type -Refer to Table 22-17. The table shows the preferences for three types of voters over three possible outcomes: A, B, and C. The table also shows the percentage of voters of each type. Based on this information, which of the following statements is true?

In a vote between options A, B, and C, option C wins. When option B is eliminated and a vote is taken between option A and option C, option A wins. The voting system used fails to satisfy which of Arrow's properties of a desirable voting system?

The Condorcet voting paradox applies to situations in which voters

Which of the following students exhibits satisficing behavior?

If the seller of a used car offers a limited warranty, the warranty is an example of a(n)

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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