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Exam 22: Frontiers in Microeconomics

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Question 21

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Table 22-1 Three friends-Stephanie, Stella, and Lydia-are deciding where to go together for vacation. They all agree that they should go to one of the three places: Italy, Spain, or Hawaii. 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 following table. ​ ​ $\begin{array} { | c | c | c | c | } \hline & \text { Stephanie } & \text { Stella } & \text { Lydia } \\\hline \text { First choice } & \text { Italy } & \text { Spain } & \text { Hawaii } \\\hline \text { Second choice } & \text { Spain } & \text { Hawaii } & \text { Italy } \\\hline \text { Third choice } & \text { Hawaii } & \text { Italy } & \text { Spain } \\\hline\end{array}$ -Refer to Table 22-1. If the friends change their minds and decide to choose a vacation destination using a Borda count, then

A) the friends will go to Italy.
B) the friends will go to Spain.
C) the friends will go to Hawaii.
D) a Borda count will not result in a single winner in this case.

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

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Question 22

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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. In addition, the table shows the percentage of voters of each type. Based on this information, which of the following statements is true?

A) As the Condorcet Paradox predicts, majority rule fails to produce transitive preferences for society.
B) As Arrow's Impossibility Theorem demonstrates, it is impossible from this information to determine which outcome the voters prefer.
C) The median voter theorem allows us to conclude that in a vote between B and C, B will win since the Type 2 voter is the median voter.
D) While the Condorcet Paradox predicts that majority rule may not produce transitive preferences for society as a whole, society's preferences in this case are transitive.

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

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Question 23

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Frank is given the choice between pizza and hotdogs and chooses pizza. Then, before serving him, his host tells Franks he could have a hamburger. Frank says he wants a hot dog. Which of the properties of Arrow's impossibility theorem does Frank violate?

Majority rule will produce the outcome most preferred by the median voter.

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?

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.

The temptation of imperfectly monitored workers to shirk their responsibilities is an example of

Smoking cessation tools (e.g., nicotine gum) provide evidence that people behave in a time inconsistent manner.

Table 22-7 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. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Voter Type }$ $\begin{array} { | l | l | l | l | l | } \hline & \text { Type A } & \text { Type B } & \text { Type C } & \text { Type D } \\\hline \text { \% of Electorate } & 14 & 40 & 28 & 18 \\\hline \text { First choice } & \text { taxes } & \text { streetlights } & \text { arts } & \text { police } \\\hline \text { Second choice } & \text { police } & \text { arts } & \text { taxes } & \text { arts } \\\hline \text { Third choice } & \text { streetlights } & \text { taxes } & \text { police } & \text { streetlights } \\\hline \text { Fourth choice } & \text { arts } & \text { police } & \text { streetlights } & \text { taxes } \\\hline\end{array}$ -Refer to Table 22-7. If a Borda count is used, which option will win?

Table 22-1 Three friends-Stephanie, Stella, and Lydia-are deciding where to go together for vacation. They all agree that they should go to one of the three places: Italy, Spain, or Hawaii. 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 following table. ​ ​ $\begin{array} { | c | c | c | c | } \hline & \text { Stephanie } & \text { Stella } & \text { Lydia } \\\hline \text { First choice } & \text { Italy } & \text { Spain } & \text { Hawaii } \\\hline \text { Second choice } & \text { Spain } & \text { Hawaii } & \text { Italy } \\\hline \text { Third choice } & \text { Hawaii } & \text { Italy } & \text { Spain } \\\hline\end{array}$ -Refer to Table 22-1. If the first vote pits Italy against Hawaii and the second vote pits Spain against the winner of the first vote, then the outcome is as follows:

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 decides to use a Borda count, which sport will win?

Economists have found that asymmetric information is not very prevalent.

Your friend tells you that her dad just suffered from a stroke because his blood pressure and cholesterol were too high. You know that your own father also has high blood pressure so you become worried that he will also have a stroke. This is an example of which systematic mistake that people make?

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

Studies show that during the March Madness college basketball tournament, the productivity of the average company in the United States falls considerably. This is an example of

If preferences exhibit the property of transitivity, then

Scenario 22-3 ​ Shana owns a boutique that sells high-end women's clothing and accessories. Katie works part-time at the boutique and frequently is the only employee in this small store. Shana pays Katie a wage that is higher than the market wage for this type of job. When the store is not full of customers, Katie diligently works on displays and cleans to keep the store looking its best. Belinda is a customer in the store who asks Katie's opinion on the quality of some jeans she is considering purchasing. Katie tells her the quality is great even though she's had several other customers return them due to flaws. Magda is another customer who is returning a necklace without volunteering that a gem is missing. -Refer to Scenario 22-3. What is the term for the type of wage Shana pays Katie?

What is the name of the mathematical result showing that no voting system can simultaneously satisfy the properties of unanimity, transitivity, independence of irrelevant alternatives, and no dictators?

The Condorcet paradox shows that there is no scheme for aggregating individual preferences into a valid set of social preferences.

The problem that arises when one person performs a task on behalf of another person is called the lemons problem.