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Exam 22: Frontiers in Microeconomics

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Question 201

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The Arrow impossibility theorem shows that

A) democracy should be abandoned as a form of government.
B) it is impossible to improve upon democratic voting methods as a mechanism for social choice.
C) all voting systems are flawed as a mechanism for social choice.
D) the median voter's preferences will always win in a two-way vote.

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

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Question 202

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The mathematical result showing that a majority rule voting system will produce the outcome most preferred by the voter exactly in the middle of the distribution is called the

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median vot...

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Question 203

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If you are assigned the role of Player A in the Ultimatum game and you propose that player B gets $1 and you get $99

Evidence from experiments in which real people play the ultimatum game supports the idea that people

Anthony and Addie are playing the ultimatum game, starting with $100. The coin flip results in Anthony being the one to propose a division of the $100. Anthony proposes that he gets $99 and Addie gets $1. Which of the following statements is correct?

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

Some of the systematic mistakes that people make include

Suppose a community is debating how much money to spend on improvements to the high school. The members of the community who have children advocate spending $20 million to make improvements. The remaining 60% of the community thinks the high school is just fine and does not want to spend anything. What will the outcome be?

The state of Massachusetts requires all citizens to purchase medical insurance or face a monetary penalty when filing their taxes. The penalty is significantly less than the average annual insurance premium. Moreover, the state requires insurance companies to issue policies to anyone who applies, regardless of their health at the time of application. Which of the following examples describes the inherent adverse selection problem?

If preferences exhibit the property of transitivity, then

The proposal to place a tax on soda is intended to address what insight about human behavior?

Which of the following frontier areas of economics incorporates some findings from psychology into the study of economic issues?

Narrative 22-1 Katie owns a boutique that sells high-end women's clothing and accessories. Shana works part-time at the boutique and frequently is the only employee in this small store. Katie pays Shana a wage that is higher than the market wage for this type of job. When the store is not full of customers, Shana diligently works on displays and cleans to keep the store looking its best. Magda is a customer in the store who asks Shana's opinion on the quality of some jeans she is considering purchasing. Even though she's had several other customers return them due to flaws, Shana tells Magda the quality is great. Belinda is another customer who is returning a necklace without revealing that she lost a gem from it while wearing it. -Refer to Narrative 22-1. Which of the ladies is causing a moral hazard problem?

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

Suppose you are covered under health insurance or belong to a Health Maintenance Organization (HMO) , and you are insured against all or most of the costs of visits to the doctor. As a result you are likely to make greater use of medical services of all kinds. This tendency of people with insurance to change their behavior in a way that leads to more claims against the insurance company is called

​Real estate agents have been found to keep their own homes on the market longer and sell their homes for more than comparable homes of the individuals they represent. This phenomenon is best described by which of the following concepts?

When Republicans and Democrats offer similar platforms in an election campaign, a likely explanation is the

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

Table 22-8 The citizens of Mayville are having a severe budget shortage and are faced with eliminating athletics from the town high school. The town administrator has determined that the town can afford to maintain one sport. Exactly one of the three choices will prevail, and the choice will be made by way of pairwise voting, with the majority determining the outcome on each vote. The preferences of the voters are summarized in the table below. -Refer to Table 22-8. If the town administrator first asks the citizens to vote for hockey or basketball and then asks them to choose between the winner of the first vote and football, what will be the outcome?

Table 22-10 The town of Franklin is facing a severe budget shortage. The town administrator has proposed four options to balance the budget: increase property taxes (taxes) , cut the school arts budget (arts) , turn off half of the streetlights in the town (streetlights) , reduce police patrols (police) . Exactly one of the four choices will prevail, and the choice will be made by way of pairwise voting, with the majority determining the outcome on each vote. The preferences of the voters are summarized in the table below. -Refer to Table 22-10. If the town administrator asks voters to choose first between increasing taxes and turning off half of the streetlights, and then between the winner of the first vote and reducing police patrols, and then between the winner of the second vote and cutting the school arts budget, which choice will win the final vote?