Question 1

Which of the following is not correct?

Accepted Answer

A)  An example of adverse selection is man who tries to sell his used car without disclosing that it needs a new transmission. 
B)  The "invisible hand" of a free market will always fix the problems of adverse selection and moral hazard. 
C)  An employer may try to prevent a moral hazard problem by paying her workers an efficiency wage. 
D)  One interpretation of gift giving is that it reflects asymmetric information and signaling. 
A)  An example of adverse selection is man who tries to sell his used car without disclosing that it needs a new transmission. 
B)  The "invisible hand" of a free market will always fix the problems of adverse selection and moral hazard. 
C)  An employer may try to prevent a moral hazard problem by paying her workers an efficiency wage. 
D)  One interpretation of gift giving is that it reflects asymmetric information and signaling.

Question 2

The problem of moral hazard is a problem of hidden action.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following relationships involves asymmetric information?

Accepted Answer

A)  A potential employee knows more about his skills and motivations than potential employers. 
B)  The seller of a used car knows of mechanical problems that aren't easy for the average buyer to observe. 
C)  A real estate agent knows the lowest price a seller is willing to sell her house for, but does not reveal it to people he shows the house. 
D)  All of the above are correct. 
A)  A potential employee knows more about his skills and motivations than potential employers. 
B)  The seller of a used car knows of mechanical problems that aren't easy for the average buyer to observe. 
C)  A real estate agent knows the lowest price a seller is willing to sell her house for, but does not reveal it to people he shows the house. 
D)  All of the above are correct.

Question 4

Which of the following is an example of moral hazard?

Accepted Answer

A)  a driver is arrested for drunk driving 
B)  a pet-sitter being paid to walk a dog for one hour per day only walks the dog for 20 minutes per day 
C)  a thief steals a car 
D)  All of the above are examples of moral hazard. 
A)  a driver is arrested for drunk driving 
B)  a pet-sitter being paid to walk a dog for one hour per day only walks the dog for 20 minutes per day 
C)  a thief steals a car 
D)  All of the above are examples of moral hazard.

Question 5

One way that employers respond to the moral-hazard problem is by monitoring their employees.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is an example of signaling?

Accepted Answer

A)  Graduates of highly-respected universities highlight that fact on their resumes. 
B)  Magazine advertisements include the phrase "as seen on TV." 
C)  Advertisements for universities include the phrase "fully accredited." 
D)  All of the above are correct. 
A)  Graduates of highly-respected universities highlight that fact on their resumes. 
B)  Magazine advertisements include the phrase "as seen on TV." 
C)  Advertisements for universities include the phrase "fully accredited." 
D)  All of the above are correct.

Question 7

"Signaling" refers to actions by an informed party for the sole purpose of

Accepted Answer

A)  telling another party that the signaler has information to reveal, without actually revealing that information. 
B)  conveying false information. 
C)  induce employees to put in the effort they are capable of. 
D)  credibly revealing private information. 
A)  telling another party that the signaler has information to reveal, without actually revealing that information. 
B)  conveying false information. 
C)  induce employees to put in the effort they are capable of. 
D)  credibly revealing private information.

Question 8

Advocates of a tax on soda and other sugary drinks argue that such a tax

Accepted Answer

A)  may encourage better nutrition. 
B)  will protect our future selves from the long run negative effects of consuming these drinks. 
C)  is needed because people tend to behave inconsistently over time. 
D)  All of the above are correct. 
A)  may encourage better nutrition. 
B)  will protect our future selves from the long run negative effects of consuming these drinks. 
C)  is needed because people tend to behave inconsistently over time. 
D)  All of the above are correct.

Question 9

Table 22-13
A high school Spanish class and their teacher are planning to take a Spring Break trip abroad but they have to decide where to go. They have narrowed the options to: Spain, Mexico, Ecuador, and Costa Rica. The voters' preferences are shown in the table below.  
-Refer to Table 22-13. In a pairwise election between Mexico and Ecuador and then a second election between the winner and Costa Rica, which countries are chosen?

Accepted Answer

A)  Ecuador is chosen in the in the first and second elections. 
B)  Ecuador is chosen in the first election and Costa Rica is chosen in the second. 
C)  Mexico is chosen in the first and second elections. 
D)  Mexico is chosen in the first election and Costa Rica is chosen in the second. 
A)  Ecuador is chosen in the in the first and second elections. 
B)  Ecuador is chosen in the first election and Costa Rica is chosen in the second. 
C)  Mexico is chosen in the first and second elections. 
D)  Mexico is chosen in the first election and Costa Rica is chosen in the second.

Question 10

Table 22-22
The town of Fairview is considering a renovation to the high school. The voters in Fairview have different preferences on the budget for the renovation as displayed below.  
-Refer to Table 22-22. The median voter is one who prefers to spend

Accepted Answer

A)  $12 million. 
B)  $16 million 
C)  $20 million. 
D)  None of the above are correct. 
A)  $12 million. 
B)  $16 million 
C)  $20 million. 
D)  None of the above are correct.

Question 11

When markets fail, which of the following is true?

Accepted Answer

A)  Government intervention can always improve outcomes. 
B)  Government intervention can potentially improve outcomes. 
C)  Government intervention can never improve outcomes. 
D)  Markets do not fail. 
A)  Government intervention can always improve outcomes. 
B)  Government intervention can potentially improve outcomes. 
C)  Government intervention can never improve outcomes. 
D)  Markets do not fail.

Question 12

Under majority rule, the order in which items are voted on is

Accepted Answer

A)  unimportant, and this is a lesson of the Condorcet paradox. 
B)  unimportant, and this is a lesson of Arrow's impossibility theorem. 
C)  important, and this is a lesson of the Condorcet paradox. 
D)  important, and this is a lesson of Arrow's impossibility theorem. 
A)  unimportant, and this is a lesson of the Condorcet paradox. 
B)  unimportant, and this is a lesson of Arrow's impossibility theorem. 
C)  important, and this is a lesson of the Condorcet paradox. 
D)  important, and this is a lesson of Arrow's impossibility theorem.

Question 13

You own an ice cream store and are concerned that an employee may be giving generous scoops to friends and relatives and smaller scoops to some other customers. This is an example of

Accepted Answer

A)  a moral hazard problem. 
B)  adverse selection. 
C)  behavioral economics. 
D)  signaling. 
A)  a moral hazard problem. 
B)  adverse selection. 
C)  behavioral economics. 
D)  signaling.

Question 14

Brandon is considering buying a used car but he first downloads a report from the internet that shows the history of accidents and major repairs conducted on the car. This action is called

Accepted Answer

The answer of Brandon is considering buying a used car...

Question 15

The adverse selection problem is a likely explanation for the fact that

Accepted Answer

A)  some parents use video cameras to monitor the nannies caring for their children. 
B)  some corporate managers were recently sent to prison for enriching themselves at the expense of shareholders. 
C)  people in average health may be discouraged from buying health insurance by the high price. 
D)  gifts can be interpreted as signals. 
A)  some parents use video cameras to monitor the nannies caring for their children. 
B)  some corporate managers were recently sent to prison for enriching themselves at the expense of shareholders. 
C)  people in average health may be discouraged from buying health insurance by the high price. 
D)  gifts can be interpreted as signals.

Question 16

Experiments show that when real people play the ultimatum game, starting with $100,

Accepted Answer

A)  Player A usually proposes giving Player B more than $50. 
B)  Player B usually accepts Player A's proposal if Player A proposes giving Player B $30 or $40. 
C)  players show themselves to be rational wealth-maximizers. 
D)  Both B and C are correct. 
A)  Player A usually proposes giving Player B more than $50. 
B)  Player B usually accepts Player A's proposal if Player A proposes giving Player B $30 or $40. 
C)  players show themselves to be rational wealth-maximizers. 
D)  Both B and C are correct.

Question 17

Sam needs to have his car serviced. There is an auto repair shop located nearby that does a lot of business and has an online rating of 4 out of 5 stars. Sam takes his car to be serviced and thinks the service person is grumpy and that his car is still not running as well as it could be. Sam then makes a point of telling his friends not to use the repair shop. Sam's actions illustrate 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 18

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

Accepted Answer

A)  As the Condorcet Paradox predicts, majority rule fails to produce transitive preferences for society. 
B)  As Arrow's Impossibility Theorem demonstrates, it is impossible from this information to determine which outcome the voters prefer. 
C)  The median voter theorem allows us to conclude that in a vote between B and C, B will win since the Type 2 voter is the median voter. 
D)  While the Condorcet Paradox predicts that majority rule may not produce transitive preferences for society as a whole, society's preferences in this case are transitive. 
A)  As the Condorcet Paradox predicts, majority rule fails to produce transitive preferences for society. 
B)  As Arrow's Impossibility Theorem demonstrates, it is impossible from this information to determine which outcome the voters prefer. 
C)  The median voter theorem allows us to conclude that in a vote between B and C, B will win since the Type 2 voter is the median voter. 
D)  While the Condorcet Paradox predicts that majority rule may not produce transitive preferences for society as a whole, society's preferences in this case are transitive.

Question 19

Table 22-20
The table below shows the preferred city budget (in millions) for in the city of Springfield.  
-Refer to Table 22-20. In an election, each voter will select the budget closest to his or her most preferred budget. Using this information, what is the most preferred budget of the median voter?

Accepted Answer

A)  $10 
B)  $20 
C)  $30 
D)  $40 
A)  $10 
B)  $20 
C)  $30 
D)  $40

Question 20

Table 22-6  
-Refer to Table 22-6. The table shows the preferences of 100 voters over three possible outcomes: A, B, and C. If a Borda count election were held among these voters, giving three points to each voter's first choice, two points to the second choice, and one point to the last choice, which outcome would win the election?

Accepted Answer

A)  Outcome A 
B)  Outcome B 
C)  Outcome C 
D)  Either outcome A or outcome C since these have the same total score. 
A)  Outcome A 
B)  Outcome B 
C)  Outcome C 
D)  Either outcome A or outcome C since these have the same total score.

Exam 22: Frontiers of Microeconomics

Which of the following is not correct?

The problem of moral hazard is a problem of hidden action.

Which of the following relationships involves asymmetric information?

Which of the following is an example of moral hazard?

One way that employers respond to the moral-hazard problem is by monitoring their employees.

Which of the following is an example of signaling?

"Signaling" refers to actions by an informed party for the sole purpose of

Advocates of a tax on soda and other sugary drinks argue that such a tax

Table 22-22 The town of Fairview is considering a renovation to the high school. The voters in Fairview have different preferences on the budget for the renovation as displayed below. -Refer to Table 22-22. The median voter is one who prefers to spend

When markets fail, which of the following is true?

Under majority rule, the order in which items are voted on is

You own an ice cream store and are concerned that an employee may be giving generous scoops to friends and relatives and smaller scoops to some other customers. This is an example of

Brandon is considering buying a used car but he first downloads a report from the internet that shows the history of accidents and major repairs conducted on the car. This action is called

The adverse selection problem is a likely explanation for the fact that

Experiments show that when real people play the ultimatum game, starting with $100,

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

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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