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Exam 22: Frontiers in Microeconomics

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Question 51

Multiple Choice

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Which of the following is an example of screening?

A) A lender checks a loan applicants credit history.
B) When an employee purchases group life insurance without taking a physical exam, she knows more about her health than does the insurance company.
C) When someone is considering buying a used car from a dealership, the seller knows the repair history of the car but the potential buyer does not.
D) All of the above are correct.

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

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Question 52

Multiple Choice

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People interpret evidence to confirm beliefs they already hold. This statement is an example of which of the following systematic mistakes that people make?

A) people are overconfident
B) people give too much weight to a small number of vivid observations
C) people are reluctant to change their minds
D) All of the above are correct.

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

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Question 53

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Table 22-2 Three longtime friends-Allen, Brian, and Cody-are deciding how they will spend their Sunday afternoon. They all agree that they should do one of three things: go to a movie, play golf, or go to a baseball 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 table below. -Refer to Table 22-2. Which of the following statements is correct?

Which voter is the voter whose views on a policy issue are in the middle of the spectrum, with half of the voters on one side of this voter's view and half on the other side.

A woman gives her boyfriend a birthday present. The gift could be viewed by the boyfriend as a

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

Susan buys automobile insurance from Provident Insurance Company. If Susan avoids having an accident for three years, Provident will reduce the premiums she has to pay for her insurance. Nevertheless, she routinely drives while eating or texting and speeds up to try to make it through yellow lights.

Kris and Kelly have been dating for several years. Kris loves Kelly very much and wants to marry her. Which of the following is the best way to signal his love to her?

Information asymmetry refers to

Rather than always choosing the best course of action, humans make decisions that are merely good enough. In other words, they are

Suppose that an economics department is offering a student exchange program with a university in Giessen, Germany. If the department requires students to submit an essay in order to be considered for the program, the essay may be an example of

Which of the following practices are, at least in part, attempts to reduce moral hazard problems?

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. If the voting method is a Borda count, which alternative will be chosen?

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

Which of the following would violate transitivity?

Informational asymmetry may apply to a hidden action or hidden characteristic where the informed party may be reluctant to reveal relevant information.

Brittany decides to save $50 from each paycheck so that she can go on a Spring Break trip with her college roommates. However, when she gets paid this week, she spends all of her money on new clothes. Which of the following insights into human behavior does Brittany exhibit?

Adverse selection may lead to

The Borda count fails to satisfy which of Kenneth Arrow's properties of a "perfect" voting system?

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. Suppose the townspeople vote and choose hockey but the town administrator overrules the vote and chooses football because the town's football team has a chance of winning the state championship. Which of the properties of Arrow's impossibility theorem is violated?