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Exam 22: Frontiers in Microeconomics

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Question 41

Multiple Choice

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When the buyer knows less than the seller about the characteristics of the good being sold, there is

A) a principal-agent problem.
B) a moral hazard problem.
C) an adverse selection problem.
D) a signaling problem.

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

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Question 42

Multiple Choice

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As an alternative to pairwise majority voting, each voter could be asked to rank the possible outcomes, giving 1 point to her lowest choice, 2 points to her second-lowest choice, 3 points to her third-lowest choice, and so on. This voting method is called

A) a median vote.
B) a pairwise minority vote.
C) a Borda count.
D) an Arrow count.

E) All of the above
F) C) and D)

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Question 43

Multiple Choice

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Table 22-3 ​ -Refer to Table 22-3. The table shows the preferences of 100 voters over three possible outcomes: A, B, and C. Which of the following statements is true?

A travel agency offers a money-back guarantee for vacationers taking their first cruise in case they do not enjoy the experience. This guarantee is an example of

Most economic models

Lindsay and Tim are playing the ultimatum game starting with $100. Based on the coin toss, Lindsay is the player to propose a division of the $100. If Lindsay acts as economic theory assumes, she should propose that

Studies of human decision-making show that

Pete owns a small store. He has noticed that when he is not at the store monitoring his employees, his revenue goes down. What are two changes Pete could make to wages he pays his employees to correct this problem?

Some of the systematic mistakes that people make include

Brandon is considering buying a used car but he first downloads a report from the internet that shows the history of accidents and major repairs conducted on the car. This action is called

Table 22-5 The following table shows the number of voters preferring various amounts of spending to develop a river to make it more attractive for canoeing and kayaking. ​ $\begin{array} { | c | c | } \hline \text { Number of Voters } & \begin{array} { c } \text { Preferred Spending } \\\text { (Millions of dollars) }\end{array} \\\hline 1 & \$ 0.0 \\\hline 4 & \$ 0.5 \\\hline 20 & \$ 1.0 \\\hline 22 & \$ 1.5 \\\hline 25 & \$ 2.0 \\\hline 35 & \$ 2.5 \\\hline 15 & \$ 3.0 \\\hline\end{array}$ -Refer to Table 22-5. The city council is considering two alternative ballots. The first would allow voters to choose between $1.5 million and $2 million. The second would allow voters to select between $2 million and $2.5 million. If the first ballot is used,

Informational asymmetry is a difference in

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. If (1) the first vote pits "soccer game" against "baseball," and (2) the second vote pits "play" against the winner of the first vote, then

An action taken by an informed party to reveal private information to an uninformed party is called

The fact that someone with information about a significant number of illnesses in their family history is likely to purchase health insurance is an example of

The results of the ultimatum game illustrate that

In a moral hazard problem, the agent is unable to perfectly monitor the principal's behavior so the principal applies less effort than the agent considers desirable.

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 asks voters to choose first between hockey and basketball and then between the winner of the first vote and football, which sport will win the final vote?

Explain what is meant by "asymmetric information." Identify and explain the two basic types of problems that arise when there is asymmetric information.

Table 22-4 ​ -Refer to Table 22-4. The table shows the preferences of three types of voters over three possible outcomes: A, B, and C. The table also shows the percentage of voters of each type. Based on this information, which voter type is the median voter?