Deck 22: Frontiers of Microeconomics

Question 1

Which of the following is an example of screening?

A)When someone is applying for a job,the employer checks references to determine the previous work habits of the applicant.
B)When an employee purchases group life insurance without taking a physical exam,she knows more about her health than does the insurance company.
C)When someone is considering buying a used car from a dealership,the seller knows the repair history of the car but the potential buyer does not.
D)All of the above are correct.

Answer 1

A

Question 2

The buyer runs a risk of being sold a good of low quality when there is

A)a principal-agent problem.
B)a moral-hazard problem.
C)a problem involving hidden actions.
D)a problem involving hidden characteristics.

Answer 2

D

Question 3

The Condorcet paradox

A)demonstrates that the order in which one votes on options may influence the outcome.
B)demonstrates that majority voting by itself may not reveal the outcome that society wants.
C)disproves Arrow's impossibility theorem.
D)Both a and b are correct.

Answer 3

D

Question 4

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

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.

Question 5

The fact that someone with a high risk of medical problems is likely to buy a large amount of health insurance is an example of

A)adverse selection.
B)monitoring.
C)moral hazard.
D)screening.

Question 6

An efficiency wage

A)gives an employee an incentive to shirk his duties.
B)is lower than the equilibrium wage for that position and region.
C)is higher than the equilibrium wage for that position and region.
D)both a and b are correct.

Question 7

In the case of a moral-hazard problem,which of the following is not a way for the principal to encourage the agent to act more responsibly?

A)the principal could better monitor the agent
B)the principal could pay the agent above-equilibrium wages
C)the principal could delay payment to the agent
D)the principal could pay the agent below-equilibrium wages

Question 8

In economics,a difference in access to relevant knowledge is called a(n)

A)relevancy frontier.
B)knowledge gap.
C)information asymmetry.
D)information equilibrium.

Question 9

Which of the following is an example of asymmetric information?

A)When someone is applying for a job,the employer checks references to determine the previous work habits of the applicant.
B)When an employee purchases group life insurance without taking a physical exam,she knows more about her health than does the insurance company.
C)When someone is considering buying a used car from a dealership,the potential buyer requests documentation of the repair history of the car.
D)All of the above are correct.

Question 10

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?

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 11

Which of the following statements is correct?

A)Hidden actions and hidden characteristics are both associated with the moral-hazard problem.
B)Hidden actions and hidden characteristics are both associated with the adverse-selection problem.
C)Hidden actions are associated with the moral-hazard problem,whereas hidden characteristics are associated with the adverse-selection problem.
D)Hidden actions are associated with the adverse-selection problem,whereas hidden characteristics are associated with the moral-hazard problem.

Question 12

Employers can try to overcome the moral-hazard problem involving their employees by

A)paying their employees more often.
B)paying their employees below-equilibrium wages since the employees will likely shirk some of their responsibilities.
C)better monitoring their employees' work efforts.
D)requiring their employees to take a pre-employment work effort test.

Question 13

Your friend works at a coffee shop on campus and regularly gives away free coffee to you and your friends when you visit.In this example,your friend is the

A)principal and the owner of the coffee shop is the agent.
B)agent and the owner of the coffee shop is the principal.
C)signaler and the owner of the coffee shop is the screener.
D)screener and the owner of the coffee ship is the signaler.

Question 14

When a corporation decides to include its own corporate stock as part of the compensation for its employees,it is trying to solve the

A)adverse selection problem.
B)principal-agent problem.
C)lemons problem.
D)signaling problem.

Question 15

In corporations,which of the following are agents but not principals?

A)shareholders
B)the board of directors
C)managers
D)workers

Question 16

Scott's Painting Company paints houses.Since Scott's business does not have the name recognition of some of the bigger painting companies,Scott advertises a "Five-Year Money Back Guarantee" to indicate to buyers that his service is of high quality.This guarantee is an example of

A)screening.
B)signaling.
C)the seller's curse.
D)the principal-agent problem.

Question 17

A firm with a very good product

A)has a higher cost of signaling (advertising)than does a firm with an inferior product.
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)effectively if signaling is free.

Question 18

The field of political economy

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.

Question 19

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

A)telling another party that the signaler has information to reveal,without actually revealing that information.
B)conveying false information.
C)confusing another party.
D)credibly revealing private information.

Question 20

The field of behavioral economics builds a more subtle and complex model of economic behavior using insights from

A)physics.
B)biology.
C)psychology.
D)anthropology.

Question 21

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

A)transitivity.
B)pairwise perfection.
C)independence of irrelevant alternatives.
D)irrelevance of social choices.

Question 22

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?

A)Unanimity
B)Transitivity
C)Independence of irrelevant alternatives
D)No dictators

Question 23

If preferences exhibit the property of transitivity,then

A)the preferences are irrational.
B)individuals prefer more government involvement in private markets than do people whose preferences are not transitive.
C)preferences change over time more quickly than when preferences are not transitive.
D)preferences satisfy one of the properties assumed to be desirable by Kenneth Arrow in Social Choice and Individual Values.

Question 24

Economic policy that appears to be ideal in an economics textbook may not be the final policy that is approved by elected politicians because

A)sometimes a politician's self interest may conflict with the national interest.
B)economics professors have a notoriously low voting rate.
C)only policies advocated by the President's Council of Economic Advisors receive enough national attention to interest politicians.
D)Economists cannot explain why politicians do not implement the ideas from their textbooks.

Question 25

Table 22-1 $$\begin{array} { | l | c | c | c | } \hline & \mathbf { Tricia } & \mathbf { Sarah } & \mathbf { Katie } \\\hline \mathbf { First~ choice } & \text { Irel and } & \text { Italy } & \text { Greece } \\\hline \mathbf { Second ~choice } & \text { Italy } & \text { Greece } & \text { Ireland } \\\hline \mathbf { Third ~choice } & \text { Greece } & \text { Ireland } & \text { Italy } \\\hline\end{array}$$

-Refer to Table 22-1.If the first vote pits Ireland against Greece and the second vote pits Italy against the winner of the first vote,then the outcome is as follows:

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

Question 26

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

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.

Question 27

Table 22-8 $$\begin{array}{c}\mathbf { Voter~ Type }\\\begin{array} { | l | c | c | c | c | } \hline & \mathbf { Type 1 } & \mathbf { Type 2 } & \mathbf { Type 3 } & \mathbf { Type 4 } \\\hline \mathbf { Percent ~of~ electorate } & 32 & 20 & 15 & 33 \\\hline \mathbf { First~ choice } & \text { D } & \text { C } & \text { A } & \text { B } \\\hline \mathbf { Second ~choice } & \text { C } & \text { A } & \text { D } & \text { D } \\\hline \mathbf { Third~ choice } & \text { B } & \text { D } & \text { B } & \text { A } \\\hline \mathbf { Fourth ~choice } & \text { A } & \text { B } & \text { C } & \text { C } \\\hline\end{array}\end{array}$$

-Refer to Table 22-8.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.Based on this information,which of the following statements is false?

A)Outcome D is preferred to outcome C overall.
B)Outcome C is preferred to outcome B overall.
C)Outcome B is preferred to outcome D overall.
D)Outcome D is preferred to outcome A overall.

Question 28

Table 22-1 $$\begin{array} { | l | c | c | c | } \hline & \mathbf { Tricia } & \mathbf { Sarah } & \mathbf { Katie } \\\hline \mathbf { First~ choice } & \text { Irel and } & \text { Italy } & \text { Greece } \\\hline \mathbf { Second ~choice } & \text { Italy } & \text { Greece } & \text { Ireland } \\\hline \mathbf { Third ~choice } & \text { Greece } & \text { Ireland } & \text { Italy } \\\hline\end{array}$$

-Refer to Table 22-1.If the first vote pits Ireland against Italy and the second vote pits Greece against the winner of the first vote,then the outcome is as follows:

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

Question 29

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

A)Is there a perfect voting system?
B)Are preferences transitive?
C)Is a dictatorship a good form of government?
D)Should the president of the United States be elected to a single,six-year term?

Question 30

Table 22-3
The citizens of Anytown will decide whether to build a new library, a new community center, or a new ice rink. 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.
$$\begin{array}{c}\mathbf { Voter~ Type }\\\begin{array} { | l | c | c | c | } \hline & \mathbf { Type 1 } & \mathbf { Type 2 } & \mathbf { Type } 3 \\\hline \mathbf { Percent ~of ~Electorate } & 25 & 35 & 40 \\\hline \mathbf { First ~choice } & \text { Library } & \text { Community Center } & \text { Ice Rink } \\\hline \mathbf { Second ~choice } & \text { Community Center } & \text { Ice Rink } & \text { Library } \\\hline \mathbf { Third~ choice } & \text { Ice Rink } & \text { Library } & \text { Community Center } \\\hline\end{array}\end{array}$$

-Refer to Table 22-3.If (1)the first vote pits "library" against "ice rink," and (2)the second vote pits "community center" against the winner of the first vote,then the outcome is as follows:

A)"Library" wins the first vote and "library" wins the second vote,so they build a library.
B)"Library" wins the first vote and "community center" wins the second vote,so they build a community center.
C)"Ice rink" wins the first vote and "ice rink" wins the second vote,so they build an ice rink.
D)"Ice rink" wins the first vote and "community center" wins the second vote,so they build a community center.

Question 31

An implication of the median voter theorem is that

A)minority views and majority views are given equal weight.
B)platforms of the major political parties will not differ greatly.
C)the logic of democracy is fundamentally flawed.
D)behavioral economics plays a significant role in voting outcomes.

Question 32

Table 22-8 $$\begin{array}{c}\mathbf { Voter~ Type }\\\begin{array} { | l | c | c | c | c | } \hline & \mathbf { Type 1 } & \mathbf { Type 2 } & \mathbf { Type 3 } & \mathbf { Type 4 } \\\hline \mathbf { Percent ~of~ electorate } & 32 & 20 & 15 & 33 \\\hline \mathbf { First~ choice } & \text { D } & \text { C } & \text { A } & \text { B } \\\hline \mathbf { Second ~choice } & \text { C } & \text { A } & \text { D } & \text { D } \\\hline \mathbf { Third~ choice } & \text { B } & \text { D } & \text { B } & \text { A } \\\hline \mathbf { Fourth ~choice } & \text { A } & \text { B } & \text { C } & \text { C } \\\hline\end{array}\end{array}$$

-Refer to Table 22-8.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?

A)A
B)B
C)C
D)D

Question 33

Table 22-16
Citizens in a small town are deciding how best to develop a plot of land at the center of town. They have narrowed the options to: a park, town hall, gas station, restaurant. The voters’ preferences are shown in the table below.
$$\begin{array} { | c | c | c | c | c | } \hline \mathbf { Voter } & \mathbf { First ~Choice } & \mathbf { Second ~Choice } & \mathbf { Third ~Choice } & \mathbf { Fourth~ Choice } \\\hline \mathbf { 1 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 2 } & \text { town hall } & \text { restaurant } & \text { gas station } & \text { park } \\\hline \mathbf { 3 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 4 } & \text { gas station } & \text { town hall } & \text { restaurant } & \text { park } \\\hline \mathbf { 5 } & \text { town hall } & \text { restaurant } & \text { gas station } & \text { park } \\\hline \mathbf { 6 } & \text { restaurant } & \text { gas station } & \text { park } & \text { town hall } \\\hline \mathbf { 7 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 8 } & \text { town hall } & \text { restaurant } & \text { gas station } & \text { park } \\\hline \mathbf { 9 } & \text { restaurant } & \text { gas station } & \text { park } & \text { town hall } \\\hline \mathbf { 1 0 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 1 1 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 1 2 } & \text { gas station } & \text { restaurant } & \text { town hall } & \text { park } \\\hline \mathbf { 1 3 } & \text { town hall } & \text { restaurant } & \text { gas station } & \text { park } \\\hline \mathbf { 1 4 } & \text { gas station } & \text { town hall } & \text { restaurant } & \text { park } \\\hline\end{array}$$

-Most economic models

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 34

Table 22-3
The citizens of Anytown will decide whether to build a new library, a new community center, or a new ice rink. 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.
$$\begin{array}{c}\mathbf { Voter~ Type }\\\begin{array} { | l | c | c | c | } \hline & \mathbf { Type 1 } & \mathbf { Type 2 } & \mathbf { Type } 3 \\\hline \mathbf { Percent ~of ~Electorate } & 25 & 35 & 40 \\\hline \mathbf { First ~choice } & \text { Library } & \text { Community Center } & \text { Ice Rink } \\\hline \mathbf { Second ~choice } & \text { Community Center } & \text { Ice Rink } & \text { Library } \\\hline \mathbf { Third~ choice } & \text { Ice Rink } & \text { Library } & \text { Community Center } \\\hline\end{array}\end{array}$$

-Refer to Table 22-3.If the citizens of Anytown use a Borda count,rather than pairwise majority voting,to decide what to build,then they will build a new

A)library.
B)community center.
C)ice rink.
D)None of the above is correct; a Borda count fails to produce a winner in this instance.

Question 35

Table 22-6 $$\begin{array} { | l | c | c | c | } \hline & \mathbf { Type 1 } & \mathbf { Type 2 } & \mathbf { Type 3 } \\\hline \mathbf { Percent~ of~ electorate } & 55 & 30 & 15 \\\hline \mathbf { First~ choice } & \text { C } & \text { B } & \text { A } \\\hline \mathbf { Second~ choice } & \text { B } & \text { A } & \text { B } \\\hline \mathbf { Third ~choice } & \text { A } & \text { C } & \text { C } \\\hline\end{array}$$

-Refer to Table 22-6.The table shows the preferences of 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 voter type is the median voter?

A)Type 1
B)Type 2
C)Type 3
D)The median voter cannot be determined without knowing the pair of outcomes from which the voters will be choosing.

Question 36

The median voter

A)is the voter exactly in the middle of the distribution.
B)is the voter whose preferred outcome beats any other proposal in a two-way race.
C)always has more than half the votes on his side in a two-way race.
D)All of the above are correct.

Question 37

Table 22-3
The citizens of Anytown will decide whether to build a new library, a new community center, or a new ice rink. 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.
$$\begin{array}{c}\mathbf { Voter~ Type }\\\begin{array} { | l | c | c | c | } \hline & \mathbf { Type 1 } & \mathbf { Type 2 } & \mathbf { Type } 3 \\\hline \mathbf { Percent ~of ~Electorate } & 25 & 35 & 40 \\\hline \mathbf { First ~choice } & \text { Library } & \text { Community Center } & \text { Ice Rink } \\\hline \mathbf { Second ~choice } & \text { Community Center } & \text { Ice Rink } & \text { Library } \\\hline \mathbf { Third~ choice } & \text { Ice Rink } & \text { Library } & \text { Community Center } \\\hline\end{array}\end{array}$$

-Refer to Table 22-3.Which of the following statements is correct?

A)In a pairwise election,"library" beats "ice rink."
B)In a pairwise election,"ice rink" beats "community center."
C)In a pairwise election,"library" beats "community center."
D)All of the above are correct.

Question 38

Table 22-3
The citizens of Anytown will decide whether to build a new library, a new community center, or a new ice rink. 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.
$$\begin{array}{c}\mathbf { Voter~ Type }\\\begin{array} { | l | c | c | c | } \hline & \mathbf { Type 1 } & \mathbf { Type 2 } & \mathbf { Type } 3 \\\hline \mathbf { Percent ~of ~Electorate } & 25 & 35 & 40 \\\hline \mathbf { First ~choice } & \text { Library } & \text { Community Center } & \text { Ice Rink } \\\hline \mathbf { Second ~choice } & \text { Community Center } & \text { Ice Rink } & \text { Library } \\\hline \mathbf { Third~ choice } & \text { Ice Rink } & \text { Library } & \text { Community Center } \\\hline\end{array}\end{array}$$

-Refer to Table 22-3.If (1)the first vote pits "library" against "community center," and (2)the second vote pits "ice rink" against the winner of the first vote,then the outcome is as follows:

A)"Library" wins the first vote and "library" wins the second vote,so they build a library.
B)"Library" wins the first vote and "ice rink" wins the second vote,so they build an ice rink.
C)"Community center" wins the first vote and "community center" wins the second vote,so they build a community center.
D)"Community center" wins the first vote and "ice rink" wins the second vote,so they build an ice rink.

Question 39

Table 22-6 $$\begin{array} { | l | c | c | c | } \hline & \mathbf { Type 1 } & \mathbf { Type 2 } & \mathbf { Type 3 } \\\hline \mathbf { Percent~ of~ electorate } & 55 & 30 & 15 \\\hline \mathbf { First~ choice } & \text { C } & \text { B } & \text { A } \\\hline \mathbf { Second~ choice } & \text { B } & \text { A } & \text { B } \\\hline \mathbf { Third ~choice } & \text { A } & \text { C } & \text { C } \\\hline\end{array}$$

-Refer to Table 22-6.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?

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 40

Table 22-3
The citizens of Anytown will decide whether to build a new library, a new community center, or a new ice rink. 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.
$$\begin{array}{c}\mathbf { Voter~ Type }\\\begin{array} { | l | c | c | c | } \hline & \mathbf { Type 1 } & \mathbf { Type 2 } & \mathbf { Type } 3 \\\hline \mathbf { Percent ~of ~Electorate } & 25 & 35 & 40 \\\hline \mathbf { First ~choice } & \text { Library } & \text { Community Center } & \text { Ice Rink } \\\hline \mathbf { Second ~choice } & \text { Community Center } & \text { Ice Rink } & \text { Library } \\\hline \mathbf { Third~ choice } & \text { Ice Rink } & \text { Library } & \text { Community Center } \\\hline\end{array}\end{array}$$

-Refer to Table 22-3.Which of the following statements is correct regarding the Condorcet paradox and the results of pairwise voting in Anytown?

A)The paradox implies that pairwise voting never produces transitive preferences,and so the voting in Anytown fails to produce transitive preferences.
B)The paradox implies that pairwise voting sometimes (but not always)produces transitive preferences,and the voting in Anytown does produce transitive preferences.
C)The paradox implies that pairwise voting sometimes (but not always)fails to produce transitive preferences,and the voting in Anytown fails to produce transitive preferences.
D)The paradox does not apply to the case at hand,because the preferences of Type 3 voters are not individually transitive.

Question 41

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

Question 42

Political leaders are always aiming for an optimal combination of efficiency and equality.

Question 43

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

Question 44

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

Question 45

An example of an information asymmetry is when a worker knows more than his employer about his work effort.

Question 46

The results of the ultimatum game illustrate the fact that

A)people's behavior is often driven by an innate sense of fairness.
B)homo economicus is a good description of people's behavior.
C)self-interest brings out the most efficient economic outcome.
D)Both b and c are correct.

Question 47

Which of the following is an example of satisficing behavior?

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."

Question 48

Borda count is a voting method often used in polls that rank sports teams.

Question 49

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

Question 50

In the employer-worker relationship,the employer is regarded as the "principal" and the worker is regarded as the "agent."

Question 51

Herbert Simon suggested that people are not rational maximizers but satisficers,meaning that they choose a course of action that is

A)personally satisfying,with a greater emphasis on personal consumption than on fairness.
B)socially satisfying,with a greater emphasis on fairness than on personal consumption.
C)good enough.
D)risk averse.

Question 52

Table 22-16
Citizens in a small town are deciding how best to develop a plot of land at the center of town. They have narrowed the options to: a park, town hall, gas station, restaurant. The voters’ preferences are shown in the table below.
$$\begin{array} { | c | c | c | c | c | } \hline \mathbf { Voter } & \mathbf { First ~Choice } & \mathbf { Second ~Choice } & \mathbf { Third ~Choice } & \mathbf { Fourth~ Choice } \\\hline \mathbf { 1 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 2 } & \text { town hall } & \text { restaurant } & \text { gas station } & \text { park } \\\hline \mathbf { 3 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 4 } & \text { gas station } & \text { town hall } & \text { restaurant } & \text { park } \\\hline \mathbf { 5 } & \text { town hall } & \text { restaurant } & \text { gas station } & \text { park } \\\hline \mathbf { 6 } & \text { restaurant } & \text { gas station } & \text { park } & \text { town hall } \\\hline \mathbf { 7 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 8 } & \text { town hall } & \text { restaurant } & \text { gas station } & \text { park } \\\hline \mathbf { 9 } & \text { restaurant } & \text { gas station } & \text { park } & \text { town hall } \\\hline \mathbf { 1 0 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 1 1 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 1 2 } & \text { gas station } & \text { restaurant } & \text { town hall } & \text { park } \\\hline \mathbf { 1 3 } & \text { town hall } & \text { restaurant } & \text { gas station } & \text { park } \\\hline \mathbf { 1 4 } & \text { gas station } & \text { town hall } & \text { restaurant } & \text { park } \\\hline\end{array}$$

-Behavioral economics

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.

Question 53

Informational asymmetry may apply to a hidden action or hidden characteristic where the informed party may be reluctant to reveal relevant information.

Question 54

A mother gives her teenage daughter two choices: spend 20 minutes cleaning her room today or spend 25 minutes cleaning her room tomorrow.The same mother gives her same daughter two additional choices: clean out the garage for 20 minutes next Tuesday or 25 minutes next Wednesday.According to economic theory,

A)if the daughter chooses to procrastinate,she is behaving irrationally.
B)the daughter will likely choose to clean out her room tomorrow but clean out the garage next Tuesday.
C)the daughter will likely choose to clean out her room tomorrow and clean out the garage next Wednesday.
D)if the daughter chooses to procrastinate,she is exhibiting satisficing behavior.

Question 55

The field of behavioral economics applies the methods of economics to study how government works.

Question 56

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

Question 57

If A is preferred to B and C is preferred to D,then B must be preferred to C to satisfy transitivity.

Question 58

The unanimity property states that the ranking between any two outcomes should not depend on whether some third outcome is available.

Question 59

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

Question 60

Evidence points to the fact that,in the real world,people appear to care about fairness

A)only when it coincides with their own self-interest.
B)only when it coincides with their determination to be consistent over time.
C)even when it does not coincide with their own self-interest.
D)not at all.

Question 61

Assume there are two major political parties: the Conservatives and the Liberals.What does the median voter theorem imply about the nature of the platforms (that is,policy stances)of the Conservatives and Liberals?

Question 62

Explain how the presence of asymmetric information in car insurance markets may lead people who are good drivers or even average drivers to choose not to buy car insurance unless the law requires it.

Question 63

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

Question 64

Explain the Condorcet paradox.To which type of voting system does it apply?

Question 65

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

Question 66

Explain what is meant by "asymmetric information." Identify and explain the two basic types of problems that arise when there is asymmetric information.