Question 1

Studies of human decision-making have found that people do not give enough weight to a small number of vivid observations.

Accepted Answer

A) True 
 B)False

Question 2

Insurance companies charge annual premiums to collect revenue,which they then use to pay customers who file claims for damages they incur.As a result of the moral hazard problem (1) what is the percentage of policy holders making claims,and (2) what is the average premium charged when compared to a world with no moral hazard problem?

Accepted Answer

A)   The percentage of policy holders making claims is higher;average annual premiums are lower.
B)   The percentage of policy holders making claims is lower;average annual premiums are lower.
C)   The percentage of policy holders making claims is higher;average annual premiums are higher.
D)   The percentage of policy holders making claims is lower;average annual premiums are higher.E) C) and D)
F) B) and C)

Question 3

When a night watchman only performs two walk-throughs per night when he is being paid to perform five walk-throughs per night,it is an example of

Accepted Answer

A)   both moral hazard and adverse selection.
B)   neither moral hazard nor adverse selection.
C)   moral hazard,but not adverse selection.
D)   adverse selection,but not moral hazard.E) All of the above
F) None of the above

Question 4

Denzel travels a great deal,and over the past several years he has read dozens of reviews of hotel chains,all of which rave about the clean rooms and great service at Stay Here hotels.Last month,Denzel checked into a room at a Stay Here hotel for the first time,only to find the room filthy and the service lousy.He decided the Stay Here chain is inferior to other hotel chains.

Accepted Answer

A)   Denzel was irrational to have believed the reviews that he had read.
B)   Denzel was rational to have changed his mind about Stay Here hotels based on his one experience.
C)   Denzel is an example of someone who gives too much weight to a small number of vivid observations.
D)   Denzel is an example of someone who is reluctant to change his mind.E) C) and D)
F) A) and B)

Question 5

Table 22-1
Three friends -- Tricia,Sarah,and Katie -- are deciding where to go together for vacation.They all agree that they should go to one of three places: Ireland,Italy,or Greece.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 friends change their minds and decide to choose a vacation destination using a Borda count,then

Accepted Answer

A)   the friends will go to Ireland.
B)   the friends will go to Italy.
C)   the friends will go to Greece.
D)   A Borda count will not result in a single winner in this case.E) A) and B)
F) B) and C)

Question 6

Condorcet explained his paradox in a 1951 book called Social Choice and Individual Values.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is correct?

Accepted Answer

A)   Based on studies of human decision making,most people are overconfident in their own abilities.
B)   Arrow's impossibility theorem disproves the median voter theorem.
C)   Romantic gifts are an example of adverse selection.
D)   An efficiency wage encourages workers to shirk.E) C) and D)
F) A) and B)

Question 8

Table 22-9
 
-Refer to Table 22-9.The table shows the preferences of 100 voters over three possible outcomes: A,B,and C.Which of the following statements is true?

Accepted Answer

A)   In pairwise majority voting,B is preferred to A,A is preferred to C,and B is preferred to C.
B)   In pairwise majority voting,C is preferred to B,B is preferred to A,and C is preferred to A.
C)   In pairwise majority voting,B is preferred to A,A is preferred to C,and C is preferred to B.
D)   In pairwise majority voting,A is preferred to C,C is preferred to B,and A is preferred to B.E) B) and C)
F) None of the above

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 perfect score.
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 briefly clean your room because that's all it takes to get it "clean enough."
D)   You carefully plan your day in order to get "the most out of life."E) A) and B)
F) B) and C)

Question 10

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,and 3,x = $10;for Voter 4,x = $15;for Voter 5,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.E) All of the above
F) B) and C)

Question 11

Economists have found that asymmetric information is not very prevalent.

Accepted Answer

A) True 
 B)False

Question 12

Behavioral economics

Accepted Answer

A)   integrates psychological insights into economic models.
B)   relies on the assumption that homo economicus describes economic decision-making.
C)   assumes that economic agents have full information about the conditions surrounding their decisions.
D)   All of the above are correct.E) B) and D)
F) None of the above

Question 13

One property of Kenneth Arrow's "perfect" voting system is that the ranking between any two outcomes A and B should not depend on whether some third outcome C is also available.Arrow called this property

Accepted Answer

A)   transitivity.
B)   pairwise perfection.
C)   independence of irrelevant alternatives.
D)   irrelevance of social choices.E) A) and B)
F) None of the above

Question 14

Bob is a contestant on a trivia quiz show.For every state capital he can correctly identify,he will win $1,000.However,before identifying any capitals,he must decide how many he thinks he can correctly identify.If he cannot identify as many as he has wagered,Bob will not win any money.Suppose Bob says that he can correctly identify 42 state capitals for a potential payoff of $42,000.According to studies of human decision-making,what is most likely to happen?

Accepted Answer

A)   Bob will be able to identify 42 state capitals and he will win $42,000.
B)   Bob will be able to identify fewer than 42 state capitals and will not win any money.
C)   Bob will not be able to identify any state capitals and will not win any money.
D)   Bob will choose to save all of the money he wins on the quiz show for his retirement.E) C) and D)
F) A) and D)

Question 15

The field of political economy

Accepted Answer

A)   casts aside most of the standard methods of economic analysis.
B)   is also referred to as the field of public choice.
C)   is also referred to as the field of macroeconomics.
D)   produces the conclusion that democratic principles rarely lead to desirable economic outcomes.E) C) and D)
F) B) and C)

Question 16

The two major problems caused by asymmetric information are the moral-hazard problem and the principal-agent problem.

Accepted Answer

A) True 
 B)False

Question 17

Table 22-2
Three longtime friends-Fred,Barney,and Wilma-are deciding how they will spend their Sunday afternoon.They all agree that they should do one of three things: go to a movie,go to the beach,or go to a museum.They also agree that they will have two pairwise votes to determine how to spend their evening,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.Which of the following statements is correct?

Accepted Answer

A)   In a pairwise election,"movie" beats "beach."
B)   In a pairwise election,"beach" beats "museum."
C)   In a pairwise election,"museum" beats "movie."
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 18

Table 22-1
Three friends -- Tricia,Sarah,and Katie -- are deciding where to go together for vacation.They all agree that they should go to one of three places: Ireland,Italy,or Greece.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 Italy against Greece and the second vote pits Ireland against the winner of the first vote,then the outcome is as follows:

Accepted Answer

A)   Italy wins the first vote and Ireland wins the second vote,so they go to Ireland.
B)   Italy wins the first vote and Italy wins the second vote,so they go to Italy.
C)   Greece wins the first vote and Greece wins the second vote,so they go to Greece.
D)   Greece wins the first vote and Ireland wins the second vote,so they go to Ireland.E) C) and D)
F) A) and C)

Question 19

The Arrow impossibility theorem shows that

Accepted Answer

A)   democracy should be abandoned as a form of government.
B)   it is impossible to improve upon democratic voting methods as a mechanism for social choice.
C)   all voting systems are flawed as a mechanism for social choice.
D)   the median voter's preferences will always win in a two-way vote.E) A) and B)
F) All of the above

Question 20

Which of the following sets of preferences satisfies the property of transitivity?

Accepted Answer

A)   Cookies are preferred to brownies.Brownies are preferred to ice cream.Ice cream is preferred to cookies.
B)   Cookies are preferred to pie.Brownies are preferred to pie.Pie is preferred to cookies.
C)   Cookies are preferred to ice cream.Ice cream is preferred to brownies.Cookies are preferred to brownies.
D)   Cookies are preferred to pie.Ice cream is preferred to cookies.Pie is preferred to ice cream.E) B) and C)
F) A) and B)

Exam 22: Frontiers of Microeconomics

The Arrow impossibility theorem shows that

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Which of the following statements is correct?

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When a night watchman only performs two walk-throughs per night when he is being paid to perform five walk-throughs per night,it is an example of

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Behavioral economics

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Condorcet explained his paradox in a 1951 book called Social Choice and Individual Values.

Correct Answer
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Table 22-9 -Refer to Table 22-9.The table shows the preferences of 100 voters over three possible outcomes: A,B,and C.Which of the following statements is true?

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Economists have found that asymmetric information is not very prevalent.

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Which of the following is an example of satisficing behavior?

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The two major problems caused by asymmetric information are the moral-hazard problem and the principal-agent problem.

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Studies of human decision-making have found that people do not give enough weight to a small number of vivid observations.

Correct Answer
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Correct Answer
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One property of Kenneth Arrow's "perfect" voting system is that the ranking between any two outcomes A and B should not depend on whether some third outcome C is also available.Arrow called this property

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Which of the following sets of preferences satisfies the property of transitivity?

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The field of political economy

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

Correct Answer
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Exam 22: Frontiers of Microeconomics

The Arrow impossibility theorem shows that

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Which of the following statements is correct?

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When a night watchman only performs two walk-throughs per night when he is being paid to perform five walk-throughs per night,it is an example of

Correct AnswerverifiedShow Answer

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Behavioral economics

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Condorcet explained his paradox in a 1951 book called Social Choice and Individual Values.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Table 22-9 -Refer to Table 22-9.The table shows the preferences of 100 voters over three possible outcomes: A,B,and C.Which of the following statements is true?

Correct AnswerverifiedShow Answer

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Economists have found that asymmetric information is not very prevalent.

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Which of the following is an example of satisficing behavior?

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The two major problems caused by asymmetric information are the moral-hazard problem and the principal-agent problem.

Correct AnswerverifiedShow Answer

Studies of human decision-making have found that people do not give enough weight to a small number of vivid observations.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

One property of Kenneth Arrow's "perfect" voting system is that the ranking between any two outcomes A and B should not depend on whether some third outcome C is also available.Arrow called this property

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Which of the following sets of preferences satisfies the property of transitivity?

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The field of political economy

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

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