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Exam 22: Frontiers in Microeconomics

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Question 31

True/False

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

A) True
B) False

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Question 32

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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.

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

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Question 33

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Mary decides to save $50 from each paycheck for a trip to Europe. But she spends her entire paycheck on new clothes. Which of the following systematic mistakes does this illustrate?

Table 22-9 Sophie, Huan, and Santiago are lost with no map or GPS available. They come to an intersection at which they can turn left, turn right, or continue going straight. Their preferences are summarized in the table. $\begin{array} { | l | l | l | l | } \hline & \text { Sophie } & \text { Huan } & \text { Santiago } \\\hline \text { First choice } & \text { Left } & \text { Right } & \text { Straight } \\\hline \text { Second choice } & \text { Right } & \text { Straight } & \text { Left } \\\hline \text { Third choice } & \text { Straight } & \text { Left } & \text { Right } \\\hline\end{array}$ -Refer to Table 22-9. The travelers decide to conduct pairwise voting with the majority determining the outcome of each vote to decide their next move. If they first choose between going left and going straight, and then choose between the winner of the first vote and going right, which direction will they go?

The tendency of many people to procrastinate supports the view that people are consistent over time.

Table 22-3 ​ -Refer to Table 22-3. The table shows the preferences of 100 voters over three possible outcomes: A, B, and C. If a Borda count election were held among these voters, giving three points to each voter's first choice, two points to the second choice, and one point to the last choice, which outcome would win the election?

Scenario 22-1 ​ Shana owns a boutique that sells high-end 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 blouse she is considering purchasing. Even though she's had several other customers return this type of blouses due to flaws, Katie tells Belinda the quality is great. Magda is another customer who is returning a necklace without revealing that she lost a gem from it while wearing it. -Refer to Scenario 22-1. Which of the ladies is causing a moral hazard problem?

Table 22-2 Three longtime friends-Stephanie, Stella, and Lydia-are deciding how they will spend their Sunday afternoon. They all agree that they should do one of the three things: go to a play, play baseball, or go to a soccer game. They also agree that they will have two pairwise votes to determine how to spend their afternoon, with the majority determining the outcome on each vote. The first, second, and third choices for each person are as indicated in the following table. ​ ​ $\begin{array} { | c | c | c | c | } \hline & \text { Stephanie } & \text { Stella } & \text { Lydia } \\\hline \text { First choice } & \text { soccer game } & \text { baseball } & \text { play } \\\hline \text { Second choice } & \text { baseball } & \text { play } & \text { soccer game } \\\hline \text { Third choice } & \text { play } & \text { soccer game } & \text { baseball } \\\hline\end{array}$ -Refer to Table 22-2. Which of the following statements is correct regarding the Condorcet paradox and the results of pairwise voting by Stephanie, Stella, and Lydia?

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

Ed promises his wife that he will mow the lawn on Saturday morning, but when Saturday morning arrives he changes his mind and says he will do it on Sunday. What insight about human behavior can be deduced from Ed's decision?

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

If the seller of a used car offers a limited warranty, the warranty is an example of

The median-voter theorem explains why

Rather than always choosing the best course of action, humans make decisions that are merely good enough. In other words, they are

Which of the following is an example of satisficing behavior?

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.

Maria and Jose installed a "nanny-camera" in their home so that they can view how the nanny is interacting with their children while they are at work. What type of problem are they trying to combat?

In corporations, which of the following are the principals in the principal-agent relationship?

An implication of the median voter theorem is that Republicans and Democrats will try to align their views with those of the median voter.

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