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Exam 22: Frontiers in Microeconomics

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Question 71

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In economics, a difference in access to relevant knowledge is called a behavioral asymmetry.

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B) False

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Question 72

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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 and Tim acts as experimental evidence shows, Tim will

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reject Lindsay's pro...

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Question 73

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One of the things that employers can do to lessen the moral hazard problem involving their employees is to pay them in advance for their work.

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

The problem of moral hazard is a problem of hidden action.

Table 22-9 Sophie, Huan, and Santiago are lost with no map or GPS available. They come to an intersection at which they can turn left, turn right, or continue going straight. Their preferences are summarized in the table. $\begin{array} { | l | l | l | l | } \hline & \text { Sophie } & \text { Huan } & \text { Santiago } \\\hline \text { First choice } & \text { Left } & \text { Right } & \text { Straight } \\\hline \text { Second choice } & \text { Right } & \text { Straight } & \text { Left } \\\hline \text { Third choice } & \text { Straight } & \text { Left } & \text { Right } \\\hline\end{array}$ -Refer to Table 22-9. The travelers decide to conduct pairwise voting with the majority determining the outcome of each vote to decide their next move. If they first choose between going left and going right, and then choose between the winner of the first vote and going straight, which direction will they go?

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

Condorcet explained his paradox in a 1951 book called Social Choice and Individual Values.

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

Which of the following would violate transitivity?

The failure of majority rule to produce transitive preferences for society is called the

Scenario 22-2 ​ At issue in a particular city vote is how much to spend, per person, on road repair next year. Among the 10,000 voters, 2,900 prefer to spend $500 per person, but no more; 2,200 prefer to spend $600 per person, but no more; 1,900 prefer to spend $800 per person, but no more; 1,600 prefer to spend $1,200 but no more, and 1,400 prefer to spend $1,400 per person, but no more. -Refer to Scenario 22-2. If there is a vote on whether to spend $600 per person or $800 per person, the median voter will vote to spend

Valerie prefers A to B and she prefers B to C. If Valerie's preferences are transitive, then she prefers A to C.

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

State one reason why government intervention may not be a good solution to an asymmetric information problem.

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. Suppose the voters are asked to choose between $1 million and $2.5 million. If all voters cast a vote for the spending amount closest to their own preference, how many votes will the $1 million spending amount receive?

An example of screening is a company spending a large sum on advertising to convey the high quality of its product.

When asymmetric information affects a relationship between two parties, it is always the case that

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 may be reducing sales. In this example, you are the

The classic example of adverse selection is the market for used cars.