Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Steve is planning to sell his home.In preparation for the sale,he paints all of the ceilings in his house to cover up water stains from his leaking roof so that potential buyers will be unaware of this problem.This is an example of

Accepted Answer

A)  moral hazard.
B)  screening.
C)  adverse selection.
D)  the principal-agent problem.E) C) and D)
F) None of the above

Question 3

In a dictator game,player A must divide $100 between player A and player B.In this game,player B does not have the opportunity to reject an offer - they go home with whatever player A offers.Experiments have observed that when player A splits the $100,he or she consistently offers over $10 to player B.Which of the following comments fits best.

Accepted Answer

A)  Although player A is acting rationally, he or she makes such offers because they seem more fair.
B)  Although player A is acting rationally, he or she makes such offers although they are not fair.
C)  Although player A is not acting rationally, he or she makes such offers because they seem more fair.
D)  Although player A is not acting rationally, he or she makes such offers because they are not fair.E) B) and C)
F) A) and B)

Question 4

The fact that someone with a high risk of medical problems is likely to buy a large amount of health insurance is an example of

Accepted Answer

A)  adverse selection.
B)  monitoring.
C)  moral hazard.
D)  screening.E) All of the above
F) A) and C)

Question 5

If preferences exhibit the property of transitivity,then

Accepted Answer

A)  the preferences are irrational.
B)  individuals prefer more government involvement in private markets than do people whose preferences are not transitive.
C)  preferences change over time more quickly than when preferences are not transitive.
D)  preferences satisfy one of the properties assumed to be desireable by Kenneth Arrow in Social Choice and Individual Values.E) All of the above
F) B) and D)

Question 6

Which of the following relationships involves asymmetric information?

Accepted Answer

A)  Patients can look up information regarding certain prescription drugs giving them the same information as their doctors.
B)  Consumer Reports allows customers of DVD players to know as much about the quality of various players as the store salesperson.
C)  Car Fax allows car buyers to obtain used-vehicle histories providing them with the same information as the dealership salesperson.
D)  The batter in a baseball game must guess whether the pitcher is going to throw a fastball, curveball, or change-up.E) A) and B)
F) B) and C)

Question 7

Employers may choose to pay their workers a wage that exceeds the equilibrium wage according to what are called

Accepted Answer

A)  efficiency-wage theories.
B)  shortage-wage theories.
C)  monitoring theories.
D)  signaling theories.E) A) and D)
F) B) and D)

Question 8

Economist Kenneth Arrow wrote a famous book in 1951 in which he took up the question,

Accepted Answer

A)  Is there a perfect voting system?
B)  Are preferences transitive?
C)  Is a dictatorship a good form of government?
D)  Should the president of the United States be elected to a single, six-year term?E) B) and D)
F) A) and B)

Question 9

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

Accepted Answer

A)  A college student's parents, having learned that their child is short of money, send her a check for $1,000.
B)  A woman, who is trying to win the love of a certain man, buys him a very personal gift.
C)  A grocery store maintains a policy of examining the driver's license of everyone who writes a personal check to purchase their groceries.
D)  A university maintains a policy of considering for admission only those students who graduated among the top ten percent of their high school class.E) A) and B)
F) All of the above

Question 10

Asymmetric information is a problem that

Accepted Answer

A)  always arises from government intervention in private markets.
B)  serves as a possible rationale for government intervention in private markets.
C)  always amounts to a moral-hazard problem.
D)  forced economists to break the field of economics into two sub-fields: microeconomics and macroeconomics.E) B) and C)
F) A) and B)

Question 11

Employers can try to overcome the moral-hazard problem involving their employees by

Accepted Answer

A)  paying their employees more often.
B)  paying their employees below-equilibrium wages since the employees will likely shirk some of their responsibilities.
C)  better monitoring their employees' work efforts.
D)  requiring their employees to take a pre-employment work effort test.E) A) and B)
F) B) and C)

Question 12

Evidence points to the fact that,in the real world,people appear to care about fairness

Accepted Answer

A)  only when it coincides with their own self-interest.
B)  only when it coincides with their determination to be consistent over time.
C)  even when it does not coincide with their own self-interest.
D)  not at all.E) A) and C)
F) None of the above

Question 13

Scenario 22-1
At issue in a particular city vote is how much to spend, per person, on city parks next year. Among the 10,000 voters, 1,000 prefer to spend $30 per person, but no more; 3,500 prefer to spend $45 per person, but no more; 2,500 prefer to spend $80 per person, but no more; and 3,000 prefer to spend $150 per person, but no more.
-Refer to Scenario 22-1.If there is a vote on whether to spend $60 per person or $80 per person,the median voter will vote to spend

Accepted Answer

A)  $60 per person and the voting outcome will be $60 per person.
B)  $60 per person and the voting outcome will be $80 per person.
C)  $80 per person and the voting outcome will be $60 per person.
D)  $80 per person and the voting outcome will be $80 per person.E) All of the above
F) B) and C)

Question 14

The Latin term caveat emptor,meaning "let the buyer beware," brings to mind the problem of

Accepted Answer

A)  hidden actions.
B)  adverse selection.
C)  principals and agents.
D)  moral hazard.E) A) and B)
F) A) and C)

Question 15

A person who makes decisions that are "merely good enough" is called a(n)

Accepted Answer

A)  optimizer.
B)  rational person.
C)  satisficer.
D)  maxi-minimizer.E) A) and B)
F) C) and D)

Question 16

A community has five voters who are interested in only one issue: the government's spending on local parks. If Anthony would like the government to spend $12,000 on parks,Bob prefers $7,000, Carey prefers $4,000,Diane prefers $2,000,and Elaine prefers $0,how much spending would a politician seeking to win the election select when running against one opponent?

Accepted Answer

A)  $2,000
B)  $4,000
C)  $7,000
D)  $12,000E) A) and B)
F) A) and C)

Question 17

Which of the following would be an example of a principal trying to deal with a moral hazard problem?

Accepted Answer

A)  The parents of an infant secretly place video cameras in their house before the baby-sitter arrives.
B)  An insurance company checks police records to determine if its policyholders have received traffic citations.
C)  An employer examines his workers' output on a daily basis.
D)  All of the above are correct.E) None of the above
F) A) and B)

Question 18

Robert borrowed some money from Granite Bank,telling the loan officer that he intended to use the money to make repairs to his home.After getting the loan,Robert and his girlfriend immediately took the money and headed to the nearest riverboat casino for a weekend of gambling and entertainment.

Accepted Answer

A)  This is an example of adverse selection since banks have difficulty selecting their customers.
B)  This is a typical example of the Condorcet Paradox.
C)  From the given information, Robert is the principal and his girlfriend is the agent.
D)  From the given information, Granite Bank is the principal and Robert is the agent.E) None of the above
F) C) and D)

Question 19

Which of the following relationships involves asymmetric information?

Accepted Answer

A)  An employee knows more than his employer knows about his work effort.
B)  A borrower knows more than the lender about his ability to repay the loan.
C)  The seller of a 30-year-old house knows more than the buyer about the condition of the house.
D)  All of the above are correct.E) A) and D)
F) B) and C)

Exam 22: Frontiers of Microeconomics

The fact that someone with a high risk of medical problems is likely to buy a large amount of health insurance is an example of

Correct Answer
verified

Evidence points to the fact that,in the real world,people appear to care about fairness

Correct Answer
verified

Robert borrowed some money from Granite Bank,telling the loan officer that he intended to use the money to make repairs to his home.After getting the loan,Robert and his girlfriend immediately took the money and headed to the nearest riverboat casino for a weekend of gambling and entertainment.

Correct Answer
verified

Steve is planning to sell his home.In preparation for the sale,he paints all of the ceilings in his house to cover up water stains from his leaking roof so that potential buyers will be unaware of this problem.This is an example of

Correct Answer
verified

Which of the following relationships involves asymmetric information?

Correct Answer
verified

The Latin term caveat emptor,meaning "let the buyer beware," brings to mind the problem of

Correct Answer
verified

If preferences exhibit the property of transitivity,then

Correct Answer
verified

Correct Answer
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Correct Answer
verified

A person who makes decisions that are "merely good enough" is called a(n)

Correct Answer
verified

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

Correct Answer
verified

Which of the following relationships involves asymmetric information?

Correct Answer
verified

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

Correct Answer
verified

Employers may choose to pay their workers a wage that exceeds the equilibrium wage according to what are called

Correct Answer
verified

Employers can try to overcome the moral-hazard problem involving their employees by

Correct Answer
verified

Which of the following would be an example of a principal trying to deal with a moral hazard problem?

Correct Answer
verified

Economist Kenneth Arrow wrote a famous book in 1951 in which he took up the question,

Correct Answer
verified

Correct Answer
verified

Asymmetric information is a problem that

Correct Answer
verified

Exam 22: Frontiers of Microeconomics

The fact that someone with a high risk of medical problems is likely to buy a large amount of health insurance is an example of

Correct AnswerverifiedShow Answer

Evidence points to the fact that,in the real world,people appear to care about fairness

Correct AnswerverifiedShow Answer

Robert borrowed some money from Granite Bank,telling the loan officer that he intended to use the money to make repairs to his home.After getting the loan,Robert and his girlfriend immediately took the money and headed to the nearest riverboat casino for a weekend of gambling and entertainment.

Correct AnswerverifiedShow Answer

Steve is planning to sell his home.In preparation for the sale,he paints all of the ceilings in his house to cover up water stains from his leaking roof so that potential buyers will be unaware of this problem.This is an example of

Correct AnswerverifiedShow Answer

Which of the following relationships involves asymmetric information?

Correct AnswerverifiedShow Answer

The Latin term caveat emptor,meaning "let the buyer beware," brings to mind the problem of

Correct AnswerverifiedShow Answer

If preferences exhibit the property of transitivity,then

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A person who makes decisions that are "merely good enough" is called a(n)

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following relationships involves asymmetric information?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Employers may choose to pay their workers a wage that exceeds the equilibrium wage according to what are called

Correct AnswerverifiedShow Answer

Employers can try to overcome the moral-hazard problem involving their employees by

Correct AnswerverifiedShow Answer

Which of the following would be an example of a principal trying to deal with a moral hazard problem?

Correct AnswerverifiedShow Answer

Economist Kenneth Arrow wrote a famous book in 1951 in which he took up the question,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Asymmetric information is a problem that

Correct AnswerverifiedShow Answer

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