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Exam 22: Frontiers of Microeconomics

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Question 101

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Maria and Jose installed a "nanny­camera" 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?

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Question 102

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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

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

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Question 103

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

Which of the following would violate transitivity?

Suppose the voters in a small country are choosing between two options, A and B. After the voting is complete it is discovered that option A received 100% of the votes with option B receiving no votes. After the vote, however, the country's leader decides that option B is better for the people and implements B rather than A. The voting system in this country fails which of Arrow's properties of a desirable voting system?

Frequently it is the case that: (1) A worker knows more than his employer about how much effort he puts into his job, and (2) the seller of a used car knows more than the buyer about the car's condition.

Kenneth Arrow proved that the voting system that satisfied all of the properties of his "perfect" voting system was

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

Table 22-11 Five voters must choose from among four options: A, B, C, or D. Each voter's preferences are summarized in the table below. Options higher in the table are more preferred by the voter. -Refer to Table 22-11. If the vote were conducted according to a Borda count system where each person's first choice receives 4 points, second choice 3 points, third choice 2 points and fourth choice 1 point, the result would be

People interpret evidence to confirm beliefs they already hold. This statement is an example of which of the following systematic mistakes that people make?

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

Table 22-11 Five voters must choose from among four options: A, B, C, or D. Each voter's preferences are summarized in the table below. Options higher in the table are more preferred by the voter. -Refer to Table 22-11. Which pairwise voting scheme would result in outcome A?

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

If A is preferred to B and B is preferred to C, then we would expect A to be preferred to C. This property is called

Table 22-18 The following table shows the preferences of four types of voters over four possible alternatives as well as the percentage of the electorate with the given preferences. -Refer to Table 22-18. If the vote is conducted using a Borda count where each person's first choice receives 4 points, each person's second choice 3 points, each person's third choice 2 points, and each person's fourth choice 1 point, which alternative would win?

Table 22-9 Voter Type -Refer to Table 22-9. The table shows the preferences of four types of voters over four possible outcomes: A, B, C, and D. In addition, the table shows the percentage of voters of each type. Suppose that, for some reason, D is eliminated as a possible option. Using a Borda count election, with 3 points for the best choice, 2 points for the second best choice, and 1 point for the last choice, which outcome would win this election?

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

Riley 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 Comeon Inns. Last month, Riley checked into a room at a Comeon Inn for the first time, only to find the room filthy and the service lousy. He decided the Comeon Inn chain is inferior to other hotel chains.

A radio story reported a study on the makes and models of cars that were observed going through intersections in the Washington, D.C. area without stopping at the stop signs. According to the story, Volvos were heavily overrepresented; the fraction of cars running stop signs that were Volvos was much greater than the fraction of Volvos in the total population of cars in the D.C. area. This is initially surprising because Volvo has built a reputation as an especially safe car that appeals to sensible, safety-conscious drivers. How is this observation best explained?

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?