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Exam 22: Frontiers of Microeconomics

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Question 31

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The Condorcet voting paradox shows that outcomes based on dictatorial preferences do not always obey the property of transitivity.

A) True
B) False

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Question 32

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Herbert Simon suggested that people are not rational maximizers but satisficers,meaning that they choose a course of action that is

A) personally satisfying,with a greater emphasis on personal consumption than on fairness.
B) socially satisfying,with a greater emphasis on fairness than on personal consumption.
C) good enough.
D) risk averse.

E) B) and C)
F) None of the above

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Question 33

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The two major problems caused by asymmetric information are the moral-hazard problem and the principal-agent problem.

When a night watchman only performs two walk-throughs per night when he is being paid to perform five walk-throughs per night,it is an example of

Table 22-16 Citizens in a small town are deciding how best to develop a plot of land at the center of town. They have narrowed the options to: a park, town hall, gas station, restaurant. The voters’ preferences are shown in the table below. $\begin{array} { | c | c | c | c | c | } \hline \mathbf { Voter } & \mathbf { First ~Choice } & \mathbf { Second ~Choice } & \mathbf { Third ~Choice } & \mathbf { Fourth~ Choice } \\\hline \mathbf { 1 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 2 } & \text { town hall } & \text { restaurant } & \text { gas station } & \text { park } \\\hline \mathbf { 3 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 4 } & \text { gas station } & \text { town hall } & \text { restaurant } & \text { park } \\\hline \mathbf { 5 } & \text { town hall } & \text { restaurant } & \text { gas station } & \text { park } \\\hline \mathbf { 6 } & \text { restaurant } & \text { gas station } & \text { park } & \text { town hall } \\\hline \mathbf { 7 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 8 } & \text { town hall } & \text { restaurant } & \text { gas station } & \text { park } \\\hline \mathbf { 9 } & \text { restaurant } & \text { gas station } & \text { park } & \text { town hall } \\\hline \mathbf { 1 0 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 1 1 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 1 2 } & \text { gas station } & \text { restaurant } & \text { town hall } & \text { park } \\\hline \mathbf { 1 3 } & \text { town hall } & \text { restaurant } & \text { gas station } & \text { park } \\\hline \mathbf { 1 4 } & \text { gas station } & \text { town hall } & \text { restaurant } & \text { park } \\\hline\end{array}$ -Most economic models

The median voter

In economics,a difference in access to relevant knowledge is called a(n)

If A is preferred to B and C is preferred to D,then B must be preferred to C to satisfy transitivity.

The buyer runs a risk of being sold a good of low quality when there is

Table 22-16 Citizens in a small town are deciding how best to develop a plot of land at the center of town. They have narrowed the options to: a park, town hall, gas station, restaurant. The voters’ preferences are shown in the table below. $\begin{array} { | c | c | c | c | c | } \hline \mathbf { Voter } & \mathbf { First ~Choice } & \mathbf { Second ~Choice } & \mathbf { Third ~Choice } & \mathbf { Fourth~ Choice } \\\hline \mathbf { 1 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 2 } & \text { town hall } & \text { restaurant } & \text { gas station } & \text { park } \\\hline \mathbf { 3 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 4 } & \text { gas station } & \text { town hall } & \text { restaurant } & \text { park } \\\hline \mathbf { 5 } & \text { town hall } & \text { restaurant } & \text { gas station } & \text { park } \\\hline \mathbf { 6 } & \text { restaurant } & \text { gas station } & \text { park } & \text { town hall } \\\hline \mathbf { 7 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 8 } & \text { town hall } & \text { restaurant } & \text { gas station } & \text { park } \\\hline \mathbf { 9 } & \text { restaurant } & \text { gas station } & \text { park } & \text { town hall } \\\hline \mathbf { 1 0 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 1 1 } & \text { park } & \text { restaurant } & \text { gas station } & \text { town hall } \\\hline \mathbf { 1 2 } & \text { gas station } & \text { restaurant } & \text { town hall } & \text { park } \\\hline \mathbf { 1 3 } & \text { town hall } & \text { restaurant } & \text { gas station } & \text { park } \\\hline \mathbf { 1 4 } & \text { gas station } & \text { town hall } & \text { restaurant } & \text { park } \\\hline\end{array}$ -Behavioral economics

An efficiency wage

In a vote between options A,B,and C,option C wins.When option B is eliminated and a vote is taken between option A and option C,option A wins.The voting system used fails to satisfy which of Arrow's properties of a desirable voting system?

In corporations,which of the following are agents but not principals?

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

Table 22-6 $\begin{array} { | l | c | c | c | } \hline & \mathbf { Type 1 } & \mathbf { Type 2 } & \mathbf { Type 3 } \\\hline \mathbf { Percent~ of~ electorate } & 55 & 30 & 15 \\\hline \mathbf { First~ choice } & \text { C } & \text { B } & \text { A } \\\hline \mathbf { Second~ choice } & \text { B } & \text { A } & \text { B } \\\hline \mathbf { Third ~choice } & \text { A } & \text { C } & \text { C } \\\hline\end{array}$ -Refer to Table 22-6.The table shows the preferences of three types of voters over three possible outcomes: A,B,and C.In addition,the table shows the percentage of voters of each type.Based on this information,which of the following statements is true?

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

When a corporation decides to include its own corporate stock as part of the compensation for its employees,it is trying to solve the

According to the median voter theorem,majority rule will produce an outcome that is inconsistent with transitive preferences.

Table 22-3 The citizens of Anytown will decide whether to build a new library, a new community center, or a new ice rink. 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. $\begin{array}{c}\mathbf { Voter~ Type }\\\begin{array} { | l | c | c | c | } \hline & \mathbf { Type 1 } & \mathbf { Type 2 } & \mathbf { Type } 3 \\\hline \mathbf { Percent ~of ~Electorate } & 25 & 35 & 40 \\\hline \mathbf { First ~choice } & \text { Library } & \text { Community Center } & \text { Ice Rink } \\\hline \mathbf { Second ~choice } & \text { Community Center } & \text { Ice Rink } & \text { Library } \\\hline \mathbf { Third~ choice } & \text { Ice Rink } & \text { Library } & \text { Community Center } \\\hline\end{array}\end{array}$ -Refer to Table 22-3.Which of the following statements is correct regarding the Condorcet paradox and the results of pairwise voting in Anytown?

Arrow's impossibility theorem shows that it is impossible to find a better voting system than pairwise majority voting.