Question 1

A radio story reported a study on the makes and models of cars that were observed going through intersections in the Washington,D.C.area without stopping at the stop signs.According to the story,Volvos were heavily overrepresented;the fraction of cars running stop signs that were Volvos was much greater than the fraction of Volvos in the total population of cars in the D.C.area.This is initially surprising because Volvo has built a reputation as an especially safe car that appeals to sensible,safety-conscious drivers.How is this observation best explained?

Accepted Answer

A)  Volvo drivers are not willing to take risks that they would take in another, less safe car.Driving a Volvo leads to a propensity to run stop signs.
B)  Volvo drivers are not willing to take risks that they would take in another, less safe car.Driving a Volvo reduces the propensity to run stop signs.
C)  Volvo drivers are willing to take risks that they would not take in another, less safe car.Driving a Volvo reduces the propensity to run stop signs.
D)  Volvo drivers are willing to take risks that they would not take in another, less safe car.Driving a Volvo leads to a propensity to run stop signs.E) A) and B)
F) A) and C)

Question 2

The traditional year-end bonus paid to workers

Accepted Answer

A)  is evidence of the validity of efficiency-wage theories.
B)  may be a response by employers to the moral-hazard problem.
C)  may be a response by employers to an adverse-selection problem.
D)  is a remedy to the moral-hazard problem suggested by Arrow's Theorem.E) None of the above
F) All of the above

Question 3

A firm with a very good product

Accepted Answer

A)  does not likely suffer from any moral hazard problem.
B)  has more to gain by signaling (advertising)  than does a firm with an inferior product.
C)  does not need to signal (advertise)  because the product's quality speaks for itself.
D)  will signal (advertise)  only if the cost of signaling is very low.E) All of the above
F) A) and B)

Question 4

The ultimatum game reveals that

Accepted Answer

A)  it does not make sense to try to maximize profits.
B)  people may have an innate sense of fairness that economic theory does not capture.
C)  offering someone a wildly unfair outcome is usually ok since people tend to make decisions using a "something is better than nothing" philosophy.
D)  Both a and BE) B) and C)
F) A) and D)

Question 5

Suppose you are covered under health insurance or belong to a Health Maintenance Organization (HMO) ,and you are insured against all or most of the costs of visits to the doctor. As a result you are likely to make greater use of medical services of all kinds.This tendency of people with insurance to change their behavior in a way that leads to more claims against the insurance company is called

Accepted Answer

A)  Condorcet paradox.
B)  moral hazard.
C)  screening
D)  signaling.E) B) and C)
F) None of the above

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Table 22-2
The citizens of Paradoxopolis will decide whether to build a new school, build a new park, or build a new road. 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.
 
-Refer to Table 22-2.If (1) the first vote pits "school" against "park," and (2) the second vote pits "road" against the winner of the first vote,then the outcome is as follows:

Accepted Answer

A)  "School" wins the first vote and "school" wins the second vote, so they build a school.
B)  "School" wins the first vote and "road" wins the second vote, so they build a road.
C)  "Park" wins the first vote and "park" wins the second vote, so they build a park.
D)  "Park" wins the first vote and "road" wins the second vote, so they build a road.E) C) and D)
F) B) and C)

Question 8

Arrow's impossibility theorem shows that it is impossible to find a better voting system than pairwise majority voting.

Accepted Answer

A) True 
 B)False

Question 9

According to the median voter theorem,majority rule will produce an outcome that is inconsistent with transitive preferences.

Accepted Answer

A) True 
 B)False

Question 10

Valerie prefers A to B and she prefers B to C.If Valerie's preferences are transitive,then she prefers A to C.

Accepted Answer

A) True 
 B)False

Question 11

Table 22-4
 
-Refer to Table 22-4.The table shows the most preferred budget of 75 voters.In an election,each voter will select the budget closest to his or her most preferred budget.Which of the following statements regarding this information is true?

Accepted Answer

A)  In an election between a $33 budget and a $37 budget, the $33 budget will win.
B)  Since the median voter theorem implies that the budget of the median voter will win the election, we would expect the overall best budget to be $25, the median of the available budgets.
C)  In an election between a $10 budget and a $40 budget, the $40 budget will win.
D)  Both b and CE) A) and B)
F) B) and C)

Question 12

In the worker-employer relationship,"inappropriate" or "immoral" behavior

Accepted Answer

A)  generally takes the form of workers shirking their responsibilities.
B)  generally takes the form of employers being unfair to their workers.
C)  is not regarded as a significant problem.
D)  is regarded as a significant problem, but it does not arise from asymmetric information.E) A) and B)
F) A) and C)

Question 13

How have insights from the field of psychology influenced the thinking of economists in recent years?

Accepted Answer

Insights from psychology have led some e...

Question 14

Which of the following practices would indicate that an employer is trying to overcome a moral-hazard problem with his employees?

Accepted Answer

A)  The employer pays his workers wages that are unusually high for the industry and region.
B)  The employer has voluntarily removed video cameras from the factory floor.
C)  The employer has discontinued the practice of giving his employees' year-end bonuses.
D)  Both A and B are correct.E) C) and D)
F) A) and D)

Question 15

Brian and Andrea are playing the ultimatum game,starting with $100.The coin flip results in Brian being the one to propose a division of the $100.Brian proposes that he gets $99 and Andrea gets $1.

Accepted Answer

A)  Because the 99-1 split isn't fair, Brian should not make this offer.
B)  Conventional economic theory predicts that Brian will propose a 99-1 split, just as he did.
C)  Experimental evidence suggests that Andrea will accept the 99-1 split because, even though it isn't fair, it's better than nothing.
D)  Economic theory predicts that Brian should choose a 60-40 split to maximize his payoff.E) None of the above
F) A) and B)

Question 16

The problem that arises when one person performs a task on behalf of another person is called the lemons problem.

Accepted Answer

A) True 
 B)False

Question 17

Scenario 22-5
Three candidates, Fred, Barb, and William, are running for office. There are three voters in the upcoming election: Heather, Don, and Luanne. Heather prefers Barb over Fred and Fred over William. Don prefers William over Barb and Barb over Fred. Luanne prefers Fred over Barb and Barb over William.
-Refer to Scenario 22-5.If the voters were given a choice of Fred versus William first,then the winner was in a second election versus Barb,who would win?

Accepted Answer

A)  Fred
B)  Barb
C)  William
D)  There is not enough information to answer this question.E) C) and D)
F) B) and C)

Question 18

Tom owns a small business in Sioux Falls.He travels frequently,meeting with important customers,attending conferences,and the like.Tom hired Susan to work in the Sioux Falls office as the day-to-day general manager of the business.

Accepted Answer

A)  This is a moral hazard problem since Susan may not work as hard as Tom would like.
B)  Tom choosing to hire Susan is an example of adverse selection since it is possible that Susan will not work as hard as Tom expects.
C)  Tom will most likely pay Susan a lower salary than normal since Tom will not be there to monitor Susan's work effort, and since Susan will not likely work hard knowing Tom cannot monitor her effort.
D)  The Condorcet Paradox implies that Susan will not work as hard as Tom would like even though he will likely pay her an above equilibrium wage.E) A) and B)
F) A) and C)

Question 19

An implication of the median voter theorem is that,in a race between Republicans and Democrats,

Accepted Answer

A)  if Republicans want to win, they will take a "middle-of-the-road" stance on many issues.
B)  if Democrats want to win, they will take an extreme stance on many issues.
C)  Republicans and Democrats go to extremes to differentiate themselves from one another.
D)  Republicans and Democrats work hard to identify the fringe voters.E) A) and B)
F) A) and C)

Question 20

Shawn buys automobile insurance from Safe-T Insurance Company.If Shawn avoids having an accident for three years,Safe-T will reduce the price he has to pay for his insurance.Nevertheless,he routinely drives fast and with reckless abandon.

Accepted Answer

A)  This adverse selection problem could be fixed by reducing Shawn's insurance rates now. By doing this, Shawn will drive more carefully now to prevent his rates being increased after an accident.
B)  Safe-T has an ongoing adverse selection problem with Shawn and other customers since it is difficult for Safe-T to select good customers.
C)  This is a typical principal-agent problem.
D)  Both A and C are correct.E) A) and D)
F) All of the above

Exam 22: Frontiers of Microeconomics

The traditional year-end bonus paid to workers

Correct Answer
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An implication of the median voter theorem is that,in a race between Republicans and Democrats,

Correct Answer
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Arrow's impossibility theorem shows that it is impossible to find a better voting system than pairwise majority voting.

Correct Answer
verified

Brian and Andrea are playing the ultimatum game,starting with $100.The coin flip results in Brian being the one to propose a division of the $100.Brian proposes that he gets $99 and Andrea gets $1.

Correct Answer
verified

In the worker-employer relationship,"inappropriate" or "immoral" behavior

Correct Answer
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Valerie prefers A to B and she prefers B to C.If Valerie's preferences are transitive,then she prefers A to C.

Correct Answer
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Correct Answer
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The ultimatum game reveals that

Correct Answer
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How have insights from the field of psychology influenced the thinking of economists in recent years?

Correct Answer
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Insights from psychology have led some e...
View Answer

Correct Answer
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Correct Answer
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A firm with a very good product

Correct Answer
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The problem that arises when one person performs a task on behalf of another person is called the lemons problem.

Correct Answer
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Tom owns a small business in Sioux Falls.He travels frequently,meeting with important customers,attending conferences,and the like.Tom hired Susan to work in the Sioux Falls office as the day-to-day general manager of the business.

Correct Answer
verified

Which of the following practices would indicate that an employer is trying to overcome a moral-hazard problem with his employees?

Correct Answer
verified

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

Correct Answer
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Table 22-4 -Refer to Table 22-4.The table shows the most preferred budget of 75 voters.In an election,each voter will select the budget closest to his or her most preferred budget.Which of the following statements regarding this information is true?

Correct Answer
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Shawn buys automobile insurance from Safe-T Insurance Company.If Shawn avoids having an accident for three years,Safe-T will reduce the price he has to pay for his insurance.Nevertheless,he routinely drives fast and with reckless abandon.

Correct Answer
verified

Correct Answer
verified

According to the median voter theorem,majority rule will produce an outcome that is inconsistent with transitive preferences.

Correct Answer
verified

Exam 22: Frontiers of Microeconomics

The traditional year-end bonus paid to workers

Correct AnswerverifiedShow Answer

An implication of the median voter theorem is that,in a race between Republicans and Democrats,

Correct AnswerverifiedShow Answer

Arrow's impossibility theorem shows that it is impossible to find a better voting system than pairwise majority voting.

Correct AnswerverifiedShow Answer

Brian and Andrea are playing the ultimatum game,starting with $100.The coin flip results in Brian being the one to propose a division of the $100.Brian proposes that he gets $99 and Andrea gets $1.

Correct AnswerverifiedShow Answer

In the worker-employer relationship,"inappropriate" or "immoral" behavior

Correct AnswerverifiedShow Answer

Valerie prefers A to B and she prefers B to C.If Valerie's preferences are transitive,then she prefers A to C.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The ultimatum game reveals that

Correct AnswerverifiedShow Answer

How have insights from the field of psychology influenced the thinking of economists in recent years?

Correct AnswerverifiedInsights from psychology have led some e...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A firm with a very good product

Correct AnswerverifiedShow Answer

The problem that arises when one person performs a task on behalf of another person is called the lemons problem.

Correct AnswerverifiedShow Answer

Tom owns a small business in Sioux Falls.He travels frequently,meeting with important customers,attending conferences,and the like.Tom hired Susan to work in the Sioux Falls office as the day-to-day general manager of the business.

Correct AnswerverifiedShow Answer

Which of the following practices would indicate that an employer is trying to overcome a moral-hazard problem with his employees?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Table 22-4 -Refer to Table 22-4.The table shows the most preferred budget of 75 voters.In an election,each voter will select the budget closest to his or her most preferred budget.Which of the following statements regarding this information is true?

Correct AnswerverifiedShow Answer

Shawn buys automobile insurance from Safe-T Insurance Company.If Shawn avoids having an accident for three years,Safe-T will reduce the price he has to pay for his insurance.Nevertheless,he routinely drives fast and with reckless abandon.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to the median voter theorem,majority rule will produce an outcome that is inconsistent with transitive preferences.

Correct AnswerverifiedShow Answer

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Insights from psychology have led some e...
View Answer

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