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Exam 22: Frontiers of Microeconomics

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Question 31

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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.

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

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Question 32

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

A) True
B) False

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Question 33

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Employers may choose to pay their workers a wage that exceeds the equilibrium wage according to

Table 22-1 Three friends -- Linda, Stephanie, and Jamie -- are deciding where to go together for vacation. They all agree that they should go to one of three places: France, Greece, or Italy. They also agree that they will have two pairwise votes to determine where to go on vacation, 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. Depending on the order of the pairwise voting,

Table 22-20 The table below shows the preferred city budget (in millions) for in the city of Springfield. -Refer to Table 22-20. In an election, each voter will select the budget closest to his or her most preferred budget. In which of the following cases does a budget of $22 win?

An example of signaling is a boyfriend giving an expensive, romantic gift to his girlfriend to convey his love for her.

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

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

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

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?

Table 22-7 Suppose that residents of a town are asked to vote on the best way to improve the safety of an intersection. The three choices are: a stoplight, a 4-way stop, and a 2-way stop. The voters are divided into three groups based on their preferences. Voter Type -Refer to Table 22-7. Which of the following statements is correct regarding the Condorcet paradox and the results of pairwise voting on how to improve the safety of the intersection?

Which of the following frontier fields of economics identifies that people do not always act rationally?

Studies of human decision making reveal several systematic mistakes people make. Which of the following is not an example of one of these mistakes?

A street vendor sells a replica of a pair of designer shoes to a young woman who believes the shoes are authentic. The street vendor is engaging in

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

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

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

People with hidden health problems are more likely to buy health insurance than are other people. This is an example of

Table 22-22 The town of Fairview is considering a renovation to the high school. The voters in Fairview have different preferences on the budget for the renovation as displayed below. -Refer to Table 22-22. If there is a vote between a budget of $12 million and $16 million, the median voter will vote to spend

Table 22-22 The town of Fairview is considering a renovation to the high school. The voters in Fairview have different preferences on the budget for the renovation as displayed below. -Refer to Table 22-22. If there is a vote between a budget of $16 million and $20 million and voter vote for the budget nearest their preferred budget, then the median voter will vote to spend