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What is the classic example of adverse selection


A) the market for used cars
B) the market for new houses
C) the relationship between husband and wife
D) the relationship between a worker and his employer

E) A) and B)
F) All of the above

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Table 22-2 Voters are deciding how they will spend the City of Elmongary's budget surplus.They have enough money to build one of three projects: build a school, build a skate park, or build a bike lane for commuters.They agree that they will have two pairwise votes to determine how to spend their budget, with the majority determining the outcome on each vote.The first, second, and third choices for each project are as indicated in the table below. Table 22-2 Voters are deciding how they will spend the City of Elmongary's budget surplus.They have enough money to build one of three projects: build a school, build a skate park, or build a bike lane for commuters.They agree that they will have two pairwise votes to determine how to spend their budget, with the majority determining the outcome on each vote.The first, second, and third choices for each project are as indicated in the table below. -Refer to Table 22-2.If (1) the first vote pits school against skate park, and (2) the second vote pits bike lane against the winner of the first vote,what is the outcome A) School wins the first vote and school wins the second vote, so they build a school. B) School wins the first vote and bike lane wins the second vote, so they build a bike lane. C) Skate park wins the first vote and skate park wins the second vote, so they build a skate park. D) Skate park wins the first vote and bike lane wins the second vote, so they build a bike lane. -Refer to Table 22-2.If (1) the first vote pits "school" against "skate park," and (2) the second vote pits "bike lane" against the winner of the first vote,what is the outcome


A) "School" wins the first vote and "school" wins the second vote, so they build a school.
B) "School" wins the first vote and "bike lane" wins the second vote, so they build a bike lane.
C) "Skate park" wins the first vote and "skate park" wins the second vote, so they build a skate park.
D) "Skate park" wins the first vote and "bike lane" wins the second vote, so they build a bike lane.

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

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Which reason is a plausible explanation for a firm paying above-equilibrium wages to its workers


A) It increases the probability that a worker who shirks will be caught.
B) It discourages workers from shirking.
C) It pays a premium for workers to work overtime.
D) It increases their costs but lowers their net taxes due.

E) None of the above
F) All of the above

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Table 22-1 Three long-time friends, Sam, Denise, and Carlos, are deciding how they will spend their Saturday evening.They all agree that they should do one of three things: go to a movie, go bowling, or go out to dinner.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. Table 22-1 Three long-time friends, Sam, Denise, and Carlos, are deciding how they will spend their Saturday evening.They all agree that they should do one of three things: go to a movie, go bowling, or go out to dinner.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 22-1.If (1) the first vote pits dinner against movie, and (2) the second vote pits bowling against the winner of the first vote,what is the outcome A) Dinner wins the first vote and dinner wins the second vote, so they go to dinner. B) Dinner wins the first vote and bowling wins the second vote, so they go bowling. C) Movie wins the first vote and movie wins the second vote, so they go to a movie. D) Movie wins the first vote and bowling wins the second vote, so they go bowling. -Refer to Table 22-1.If (1) the first vote pits "dinner" against "movie," and (2) the second vote pits "bowling" against the winner of the first vote,what is the outcome


A) "Dinner" wins the first vote and "dinner" wins the second vote, so they go to dinner.
B) "Dinner" wins the first vote and "bowling" wins the second vote, so they go bowling.
C) "Movie" wins the first vote and "movie" wins the second vote, so they go to a movie.
D) "Movie" wins the first vote and "bowling" wins the second vote, so they go bowling.

E) B) and C)
F) None of the above

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Table 22-1 Three long-time friends, Sam, Denise, and Carlos, are deciding how they will spend their Saturday evening.They all agree that they should do one of three things: go to a movie, go bowling, or go out to dinner.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. Table 22-1 Three long-time friends, Sam, Denise, and Carlos, are deciding how they will spend their Saturday evening.They all agree that they should do one of three things: go to a movie, go bowling, or go out to dinner.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 22-1.If (1) the first vote pits dinner against bowling, and (2) the second vote pits movie against the winner of the first vote,what is the outcome A) Dinner wins the first vote and dinner wins the second vote, so they go to dinner. B) Dinner wins the first vote and movie wins the second vote, so they go to a movie. C) Bowling wins the first vote and bowling wins the second vote, so they go bowling. D) Bowling wins the first vote and movie wins the second vote, so they go to a movie. -Refer to Table 22-1.If (1) the first vote pits "dinner" against "bowling," and (2) the second vote pits "movie" against the winner of the first vote,what is the outcome


A) "Dinner" wins the first vote and "dinner" wins the second vote, so they go to dinner.
B) "Dinner" wins the first vote and "movie" wins the second vote, so they go to a movie.
C) "Bowling" wins the first vote and "bowling" wins the second vote, so they go bowling.
D) "Bowling" wins the first vote and "movie" wins the second vote, so they go to a movie.

E) A) and B)
F) None of the above

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Which statement provides the best example of satisficing behaviour


A) You know that if you study long enough you can get a perfect score on your economics exam, but you decide that your time is more valuable studying for your math test.
B) You spend an hour looking over the lettuce at the grocery store in order to make sure you get the best head of lettuce.
C) You only spend a few minutes cleaning your car because that's all it takes to get it clean enough.
D) You plan every minute of your day in order to get the most out of life.

E) None of the above
F) B) and D)

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The median voter's preferred outcome is the same as which outcome


A) the average preferred outcome
B) the outcome preferred by the greatest number of voters
C) the outcome produced by majority rule
D) the outcome produced by all voters

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

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Which relationship involves asymmetric information


A) An employee knows more than his employer knows about his work effort.
B) A lender knows more than the borrower about his ability to repay the loan.
C) The buyer of a 30-year-old house knows more than the seller about the condition of the house.
D) A consumer knows more about a product than the employee who assembled it.

E) B) and C)
F) None of the above

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

A) True
B) False

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What is an implication of the median voter theorem


A) Minority views and majority views are given equal weight.
B) Platforms of the major political parties will not differ greatly from the preferences of the median voter.
C) The logic of democracy is fundamentally flawed.
D) Platforms of the major political parties will have to differ greatly from the preferences of the median voter in order to win a majority of votes.

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

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


A) the hidden characteristics problem
B) the "lemons" problem
C) moral hazard
D) adverse selection

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

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When the Conservatives and the Liberals offer similar platforms in an election campaign,what is a likely explanation


A) the Arrow impossibility theorem
B) the Condorcet paradox
C) implications of the median voter theorem
D) the fact that politicians are more interested in the national interest than their own self-interest

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

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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.Which statement best characterizes this principal and agent problem


A) It would make sense for Safe-T to reduce Shawn's price of insurance now, rather than waiting to see if he has an accident in the next three years.
B) Shawn's behaviour is an example of adverse selection.
C) Safe-T Insurance Company is a principal; Shawn is an agent.
D) Shawn should avoid reporting any accidents to Safe-T.

E) B) and D)
F) None of the above

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According to Herbert Simon,what type of optimizer should humans be viewed as


A) maximizers
B) rationalizer
C) minimizers
D) satisficers

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

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A realtor knows more than the buyer about a house the realtor's selling.What is this an example of


A) an information asymmetry; specifically, it is an example of a hidden action
B) an information asymmetry; specifically, it is an example of a hidden characteristic
C) a hidden action; specifically, it is an example of a hidden characteristic
D) a hidden characteristic; specifically, it is an example of a hidden action

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

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In polls that rank sports teams (giving 1 point for last place,2 points for second to last,and so on) ,what count is often used


A) a Condorcet count
B) a Borda count
C) an Arrow count
D) a median voter count

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

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The Condorcet paradox implies that the order in which items are voted under majority rule is unimportant.

A) True
B) False

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Arrow's impossibility theorem is disturbing in the sense that it proves which of the following


A) No voting system is perfect.
B) Only a dictator can produce a desirable social outcome.
C) The preferences of the wealthy should be given more weight than the preferences of the poor.
D) The centuries-old Condorcet paradox was not a paradox after all.

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

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Moral hazard is a problem that arises when which situation occurs


A) There is a misunderstanding rising from differences of opinion.
B) There is a hidden characteristic.
C) There is a risk of inappropriate behaviour by one of the parties to a transaction or agreement.
D) There is a risk of a "lemon."

E) None of the above
F) B) and D)

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Francesca owns a small clothing business in Victoria.She travels a lot,meeting with important customers,attending fashion shows,and the like.Francesca hired Renaldo to work in the Victoria office as the day-to-day general manager of the business.Which statement best characterizes this principal and agent problem


A) There is an adverse-selection risk in that perhaps Renaldo will not work as hard as Francesca would like.
B) With respect to the potential risk involving Francesca and Renaldo, Francesca is the principal and Renaldo is the agent.
C) It is common for employers such as Francesca to pay managers such as Renaldo below-equilibrium wages and salaries because they know managers shirk their responsibilities.
D) Renaldo may withhold information from Francesca, creating a moral hazard problem.

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

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