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Exam 22: Frontiers in Microeconomics

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Question 1

Multiple Choice

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You own an ice cream store and are concerned that an employee may be giving generous scoops to friends and relatives and smaller scoops to some other customers. This is an example of

A) a moral hazard problem.
B) adverse selection.
C) behavioral economics.
D) signaling.

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

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Question 2

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Which of the following 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 out of fear of losing their high-paying job.
C) The Condorcet Paradox suggests that paying high wages will result in greater effort by employees.
D) By paying a high wage, employers solve this adverse selection problem and motivate the employees to work harder.

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

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B

Question 3

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

Table 22-3 Three family members -- Seamus, Maeve, and Siobhan -- are deciding what type of movie to attend. The three choices are an action adventure, comedy, or horror. The first, second, and third choices for each person are as indicated in the table below. -Refer to Table 22-3. Suppose the three decide to make the decision based on pairwise majority voting. If they first choose between Action and Comedy and then choose between the winner of the first vote and Horror, which movie alternative will win?

Table 22-13 A high school Spanish class and their teacher are planning to take a Spring Break trip abroad but they have to decide where to go. They have narrowed the options to: Spain, Mexico, Ecuador, and Costa Rica. The voters' preferences are shown in the table below. -Refer to Table 22-13. In a pairwise election between Mexico and Spain and then a second election between the winner and Costa Rica, which countries are chosen?

Evidence from studies of workers' choices on whether to participate in 401(k) plans suggests that the workers' behavior appears to exhibit

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. When the mayor asks the residents to choose between a stoplight and a 4-way stop, the residents choose a 4-way stop. Then, when the mayor asks them to choose between a 4-way stop and a 2-way stop, they choose a 2-way stop. However, if the mayor firsts asks the residents to choose between a 4-way stop and a 2-way stop, they choose a 2-way stop. Then, when the mayor asks the residents to choose between a 2-way stop and a stoplight, they choose a stoplight. What does this example illustrate?

When asked to give a range for the height of the tallest mountain in North America such that people were 90 percent confident the true number falls within it, most people gave ranges that were

The median voter

Moral hazard and adverse selection are similar asymmetric information problems but moral hazard involves hidden actions while adverse selection involves hidden characteristics.

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?

What insight into human behavior do economist learn from observing people playing the ultimatum game?

Suppose that in a Borda count election, outcome X is preferred to outcome Y, and outcome Y is preferred to outcome Z, when outcomes X, Y, and Z are all available options. When Y is removed as an option, however, outcome Z is preferred to outcome X. This would violate Arrow's assumption that voting systems should satisfy

Borda count is a voting method often used in polls that rank sports teams.

Table 22-15 Diane, Henry, and Linda are voting for who to promote. They can only promote one candidate. Their preferences are given in the table below. -Refer to Table 22-15. If the vote were conducted according to a Borda count system where each person's first choice receives 3 points, second choice 2 points, and third choice 1 point,

Pedro, who knows nothing about construction, paid Benito to remodel a room in his house. Two years later, one wall in the remodeled room crumbled because Benito used poor-quality materials. This illustrates which economic problem?

Which of the following is not a common response to the moral hazard problem that employers face?

Table 22-24 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 22-24. Explain why the Condorcet paradox applies to this voting situation.

Researchers have found that the systematic mistakes that people make in their decision making include a lack of confidence in their own abilities.

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