Exam 22: Frontiers of Microeconomics

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. Which of the ladies, if any, is committing a moral hazard?

One implication of the Condorcet paradox is

Table 22-24 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 22-24. If the town administrator asks voters to choose first between hockey and basketball and then between the winner of the first vote and football, which sport will win the final vote?

The Condorcet paradox demonstrates that the order in which people vote on choices may influence the final outcome.

In the field of study called political economy, economists make use of insights from the field of psychology.

Studies of human decision-making have detected systematic mistakes that people make. Which of the following have been detected?

As an alternative to pairwise majority voting, each voter could be asked to rank the possible outcomes, giving 1 point to her lowest choice, 2 points to her second-lowest choice, 3 points to her third-lowest choice, and so on. This voting method is called a(n)

Which of the following relationships involves asymmetric information?

On car insurance policies, Countrywide Insurance Company offers drivers an option: Policy 1 features a deductible of $1,000, and it requires a driver to pay an annual premium of $500. Policy 2 features a deductible of $250, and it requires a driver to pay an annual premium of $1,000.

Table 22-9 Voter Type -Refer to Table 22-9. The table shows the preferences of four types of voters over four possible outcomes: A, B, C, and D. In addition, the table shows the percentage of voters of each type. Suppose that, for some reason, D is eliminated as a possible option. Using a Borda count election, with 3 points for the best choice, 2 points for the second best choice, and 1 point for the last choice, which outcome would win this election?

When Republicans and Democrats offer similar platforms in an election campaign, a likely explanation is the

Table 22-1 Three friends -- Linda, Stephanie, and Jamie -- are deciding where to go together for vacation. They all agree that they should go to one of three places: France, Greece, or Italy. They also agree that they will have two pairwise votes to determine where to go on vacation, 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 22-1. If the first vote pits Greece against Italy and the second vote pits France against the winner of the first vote, then the outcome is as follows:

When the buyer knows less than the seller about the characteristics of the good being sold, there is

Which of the following practices are, at least in part, attempts to reduce moral hazard problems?

An unhealthy person would likely choose a medical insurance policy with a

Table 22-9 Voter Type -Refer to Table 22-9. The table shows the preferences of four types of voters over four possible outcomes: A, B, C, D. In addition, the table shows the percentage of voters of each type. Given pairwise voting in which voters choose first between A and B, then between the winner of the first vote and C, and finally between the winner of the second vote and D, which outcome would win?

Table 22-10 The town of Franklin is facing a severe budget shortage. The town administrator has proposed four options to balance the budget: increase property taxes (taxes), cut the school arts budget (arts), turn off half of the streetlights in the town (streetlights), reduce police patrols (police). Exactly one of the four 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 22-10. If a Borda count is used, which option will win?

A college professor hires a student to babysit her children and pays the student an efficiency-wage. Which of the following is correct about the wage the student earns?

Which of the following relationships involves asymmetric information?

Signaling is an action taken by an uninformed party to induce an informed party to reveal information.