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Exam 22: Frontiers in Microeconomics

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Question 91

Multiple Choice

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Adverse selection

A) occurs when the overall quality of choices facing a consumer is very low.
B) is a greater problem for employees than employers.
C) occurs more frequently in the market for new cars than used cars.
D) is not easily remedied by free markets.

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

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Question 92

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Studies of human decision-making have found that people do not give enough weight to a small number of vivid observations.

A) True
B) False

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Question 93

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When some people are better informed than others and the imbalance affects the choices they make, economists say there is

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. Sophie is very confident that the travelers need to go left but she is having a difficult time convincing her friends. If she wants to ensure that the result of the voting is "left," how should she organize the voting?

The proposal to place a tax on soda is intended to address what insight about human behavior?

The median voter's preferred outcome is the same as the

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 a principal?

Adverse selection can only occur when there is asymmetric information​.

The two major problems caused by asymmetric information are

The criminal actions of the top managers of corporations such as Enron, Tyco, WorldCom, and Adelphia are an example of moral hazard.

A Principles of Microeconomics professor wants to know how much prior knowledge her students have before beginning the class so she gives them a pre-test. This action is an example of

People with hidden health problems are more likely to buy health insurance than other people. As a result, people in average health may observe the high prices of insurance and decide not to buy it. This is an example of

The Arrow impossibility theorem shows that

A safe driver would likely choose an auto insurance policy with a

Which of the following is a plausible explanation for a firm paying above-equilibrium wages to its workers?

In the field of study called political economy, economists make use of insights from the field of psychology.

Table 22-4 ​ -Refer to Table 22-4. The table shows the preferences for three types of voters over three possible outcomes: A, B, and C. The table also shows the percentage of voters of each type. Based on this information, which of the following statements is true?

Which of the following events best exemplifies the concept of signaling?

The unanimity property states that the ranking between any two outcomes should not depend on whether some third outcome is available.

Political leaders are always aiming for an optimal combination of efficiency and equality.