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Exam 22: Frontiers of Microeconomics

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Question 171

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Economists have found that asymmetric information is not very prevalent.

A) True
B) False

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Question 172

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Which of the following offers an explanation as to why the principal-agent problem exists for a firm?

A) The firm cares less about profit and more about cost when there are many competitors in the market.
B) The firm offers an employee-incentive program in which employees share in the firm's profits.
C) The firm operates in a market with many competitors forcing the firm to pay its employees more to keep them from switching to another firm.
D) The firm operates to maximize profit while the employees attempt to work as little as possible to earn their paychecks.

E) A) and D)
F) C) and D)

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Question 173

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An example of screening is a company spending a large sum on advertising to convey the high quality of its product.

Table 22-13 The fortunate residents of Anytown have a budget surplus.The mayor decided that it is only fair to have the residents vote on what to do with the surplus.The mayor has narrowed the options down to three possible projects: a playground,a library,or a swimming pool.The voters fall into three categories and have preferences as illustrated in the table. -Refer to Table 22-13.If the mayor asks the residents to choose between the library and the swimming pool using pairwise voting,

The mathematical result showing that,under certain assumptions,there is no scheme for aggregating individual preferences into a valid set of social preferences is called

Your friend tells you that her dad just suffered from a stroke because his blood pressure and cholesterol were too high.You know that your own father also has high blood pressure so you become worried that he will also have a stroke.This is an example of which systematic mistake that people make?

An airline knows that business travelers have more inelastic demand for travel than vacationers.That is,business travelers are often willing to pay more for airline tickets than vacationers.The airline also knows that business travelers do not like to travel over weekends.When customers request airline tickets that do not involve travel over a weekend,the airline determines that a traveler is likely a business traveler and charges a higher price.This is an example of

The suggestion that people are "satisficers" is similar to the view that people

One of the things that employers can do to lessen the moral hazard problem involving their employees is to pay them in advance for their work.

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

When one party is better informed about an economic situation than another party,economists describe the problem as one of

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.Based on the results of the vote,the dollars spent per person per month on garbage collection will be

Arrow's impossibility theorem states that the majority rule fails to produce transitive preferences for society.

An implication of the median voter theorem is that

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

A survey of 1,500 frequent restaurant patrons revealed that,Chang Cheng,a local Chinese restaurant,offers high-quality food at low prices.Based on one dining experience,a restaurant critic gave Chang Cheng a poor review,saying the food was not very good.As a result,you decide not to dine at Chang Cheng.This decision is an example of which of the following systematic mistakes that people make when making decisions?

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

According to the median voter theorem,majority rule will

Domingo 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,Domingo will not win any money.Suppose Domingo 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?

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. -Refer to Table 22-16.If the election is conducted by instant runoff,the first votes to be reassigned will be the first choice votes for