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Exam 22: Frontiers in Microeconomics

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Question 61

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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. If the travelers decide to use a Borda count, what is the result?

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Question 62

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An unhealthy person would likely choose a medical insurance policy with a

A) low premium and a high deductible.
B) high premium and a high deductible.
C) high premium and no deductible.
D) The unhealthy person would choose not to be insured.

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

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Question 63

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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. Explain why the Condorcet paradox applies to this voting situation.

When an individual purchases health insurance and knows more about her family medical history than the insurance company, this is an example of adverse selection​.​

The field of behavioral economics applies the methods of economics to study how government works.

The field of behavioral economics builds a more subtle and complex model of economic behavior using insights from

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 on election day that the voters with a preference for less than $1.5 million do not show up to vote on a choice to spend either $2 million or $2.5 million. In this case, what is the preferred spending amount of the median voter (among those who actually cast a vote) ?

The Condorcet paradox

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 "play," and (2) the second vote pits "baseball" against the winner of the first vote, then the outcome is as follows:

The classic example of adverse selection is the

The field of economics in which the tools of economics are used to understand the functioning of government is

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

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. Which of the ladies, if any, is committing a moral hazard?

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 Spain against Hawaii and the second vote pits Italy against the winner of the first vote, then the outcome is as follows:

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 name for the problem Katie creates by lying about the quality of the jeans?

When economists assume that people are rational, they assume that

Table 22-6 A wireless telephone service provider offers three service plans to its consumers. $\begin{array} { | l | l | l | l | l | } \hline & \text { Peak Minutes } & \text { Messaging } & \text { Data Usage } & \text { Monthly Fee } \\\hline \text { Plan A } & 450 & 200 & 2 \mathrm {~GB} / \text { month } & \$ 69.99 \\\hline \text { Plan B } & 900 & 1000 & 5 \mathrm {~GB} / \text { month } & \$ 119.99 \\\hline \text { Plan C } & \text { Unlimited } & \text { Unlimited } & \text { Unlimited } & \$ 149.99 \\\hline\end{array}$ -Refer to Table 22-6. By offering consumers these choices and allowing them to select the plan that best meets their needs, the wireless service provider is engaging in

Which of the following is an example of an adverse selection problem?

People are willing to give up monetary rewards to promote fairness.​

Scenario 22-1 ​ 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 blouse she is considering purchasing. Even though she's had several other customers return this type of blouses due to flaws, Katie tells Belinda the quality is great. Magda is another customer who is returning a necklace without revealing that she lost a gem from it while wearing it. -Refer to Scenario 22-1. Which of the ladies is the victim of an adverse selection problem?