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Toàn bộ những gì bạn cần để qua môn kinh tế học, tài liệu này tập hợp những câu hỏi trắc nghiệm mới nhất của kinh tế vi mô năm 2018. Về nội dung tài liệu, với các khái niệm phổ biến và khái quát nhất về kinh tế vi mô cũng như những giải thích về các cơ chế hoạt động của nền kinh tế, bộ giáo trình bao gồm 23 phần cung cấp cho người đọc các kiến thức khá toàn diện và chuyên sâu về các nguyên lý kinh tế học như các lý thuyết cổ điển, các lý thuyết về phát triển: nền kinh tế trong dài hạn, các lý thuyết về vòng tròn kinh tế: nền kinh tế trong ngắn hạn, các yếu tố vi mô ẩn sau kinh tế vĩ mô, các tranh luận về chính sách vĩ mô… Tất cả đều được giải thích và đánh giá bởi một vị giáo sư kinh tế hàng đầu trên thế giới. Các khái niệm trong sách được định nghĩa rất rõ ràng, dễ nắm bắt, dễ hiểu, có tóm tắt các chương tạo điều kiện tốt nhất cho việc ôn tập
Chapter 22/Frontiers of Microeconomics 205 Chapter 22 Frontiers of Microeconomics TRUE/FALSE The science of economics is a finished jewel, perfect and unchanging ANS: F DIF: REF: 22-0 NAT: Analytic LOC: The Study of economics, and definitions in economics TOP: economics MSC: Definitional In economics, a difference in access to relevant knowledge is called a behavioral asymmetry ANS: F DIF: REF: 22-1 NAT: Analytic LOC: The Study of economics, and definitions in economics TOP: Asymmetric information MSC: Definitional Informational asymmetry may apply to a hidden action or hidden characteristic where the informed party may be reluctant to reveal relevant information ANS: T DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Asymmetric information MSC: Applicative An example of asymmetric information is when a seller of a house knows more than the buyer about the house’s condition ANS: T DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Asymmetric information MSC: Applicative Economists have found that asymmetric information is not very prevalent ANS: F DIF: REF: 22-1 NAT: Analytic LOC: The Study of economics, and definitions in economics TOP: Asymmetric information MSC: Interpretive An example of an information asymmetry is when a worker knows more than his employer about his work effort ANS: T DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Asymmetric information MSC: Interpretive The criminal actions of the top managers of corporations such as Enron, Tyco, WorldCom, and Adelphia are an example of moral hazard ANS: T DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Moral hazard MSC: Applicative The problem of moral hazard is a problem of hidden action ANS: T DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Moral hazard MSC: Interpretive The problem that arises when one person performs a task on behalf of another person is called the lemons problem ANS: F DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Moral hazard MSC: Interpretive 10 One of the things that employers can to lessen the moral hazard problem involving their employees is to pay them in advance for their work ANS: F DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Moral hazard MSC: Interpretive 206 Chapter 22/Frontiers of Microeconomics 11 In the employer-worker relationship, the employer is regarded as the "principal" and the worker is regarded as the "agent." ANS: T DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Moral hazard MSC: Definitional 12 The moral hazard problem and the desire of firms to lessen that problem serve as a plausible explanation for a firm paying above-equilibrium wages to its workers ANS: T DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Moral hazard MSC: Interpretive 13 The classic example of adverse selection is the market for used cars ANS: T DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Adverse selection MSC: Interpretive 14 The two major problems caused by asymmetric information are the moral-hazard problem and the principalagent problem ANS: F DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Asymmetric information MSC: Interpretive 15 Signaling is an action taken by an uninformed party to induce an informed party to reveal information ANS: F DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Screening | Signaling MSC: Definitional 16 An example of signaling is a boyfriend giving an expensive, romantic gift to his girlfriend to convey his love for her ANS: T DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Signaling MSC: Applicative 17 Valerie prefers A to B and she prefers B to C If Valerie's preferences are transitive, then she prefers A to C ANS: T DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Transitivity MSC: Definitional 18 The Condorcet voting paradox shows that outcomes based on dictatorial preferences not always obey the property of transitivity ANS: F DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Condorcet paradox MSC: Interpretive 19 The Condorcet paradox implies that the order in which items are voted on under majority rule is unimportant ANS: F DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Condorcet paradox MSC: Interpretive 20 Condorcet explained his paradox in a 1951 book called Social Choice and Individual Values ANS: F DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Condorcet paradox MSC: Interpretive 21 The Condorcet paradox demonstrates that the order in which people vote on choices may influence the final outcome ANS: T DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Condorcet paradox MSC: Interpretive Chapter 22/Frontiers of Microeconomics 207 22 Borda count is a voting method often used in polls that rank sports teams ANS: T DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Borda count MSC: Interpretive 23 Arrow’s impossibility theorem demonstrates the impossibility of the median voter theorem ANS: F DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Arrow's impossibility theorem MSC: Interpretive 24 Arrow's impossibility theorem shows that it is impossible to find a better voting system than pairwise majority voting ANS: F DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Arrow's impossibility theorem MSC: Interpretive 25 Majority rule will produce the outcome most preferred by the median voter ANS: T DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Median voter theorem MSC: Definitional 26 According to the median voter theorem, majority rule will produce an outcome that is inconsistent with transitive preferences ANS: F DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Median voter theorem MSC: Interpretive 27 An implication of the median voter theorem is that Republicans and Democrats will try to align their views with those of the median voter ANS: T DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Median voter theorem MSC: Interpretive 28 Political leaders are always aiming for an optimal combination of efficiency and equality ANS: F DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Political economy MSC: Interpretive 29 In the field of study called political economy, economists make use of insights from the field of psychology ANS: F DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Political economy MSC: Definitional 30 A "satisficer" is a person whose decisionmaking is the same as that predicted by mainstream economic models ANS: F DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Definitional 31 Researchers have found that the systematic mistakes that people make in their decisionmaking include a lack of confidence in their own abilities ANS: F DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 32 Most economic models incorporate the assumption of rational behavior on the part of economic actors ANS: T DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 208 Chapter 22/Frontiers of Microeconomics 33 Studies of human decision-making have found that people not give enough weight to a small number of vivid observations ANS: F DIF: REF: 22-3 NAT: Analytic LOC: The Study of economics, and definitions in economics TOP: Behavioral economics MSC: Interpretive 34 Studies of human decision making have found that people are reluctant to change their minds ANS: T DIF: REF: 22-3 NAT: Analytic LOC: The Study of economics, and definitions in economics TOP: Behavioral economics MSC: Interpretive 35 Evidence from experiments in which real people play the ultimatum game supports the idea that people care about fairness as well as about maximization of their personal wealth ANS: T DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 36 Based on studies of human decision making, many people care more about the fairness of a game than about their personal winnings ANS: T DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 37 The tendency of many people to procrastinate supports the view that people are consistent over time ANS: F DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive SHORT ANSWER Explain what is meant by "asymmetric information." Identify and explain the two basic types of problems that arise when there is asymmetric information ANS: Asymmetric information is present when there is a difference in access to relevant information Examples include information differences between (1) a worker and his employer, (2) a buyer and seller, and (3) an insured person and his insurer The two basic types of problems are (1) moral hazard, which is a problem of hidden actions and ordinarily involves a principal and an agent, and (2) adverse selection, which is a problem of hidden characteristics or "lemons." DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: MSC: Definitional Asymmetric information Explain how the presence of asymmetric information in car insurance markets may lead people who are good drivers or even average drivers to choose not to buy car insurance unless the law requires it ANS: Drivers (buyers and potential buyers of car insurance) know more about their driving habits than the insurance companies (sellers of car insurance) The price of car insurance is likely to reflect the information asymmetry in that it incorporates more of a risk component than is really necessary to insure good and average drivers Consequently, good and average drivers are priced out of the market and they rationally choose not to buy the insurance unless they are required to so DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: MSC: Interpretive Asymmetric information Chapter 22/Frontiers of Microeconomics 209 Explain the Condorcet paradox To which type of voting system does it apply? ANS: The Condorcet paradox applies directly to pairwise majority voting It shows that even if individual voters' preferences exhibit transitivity, that property does not follow through to outcomes of pairwise majority voting Consequently, the order in which choices are put up, in pairwise fashion, affects the final outcome Using choices A, B, and C, it may be the case, for example, that under pairwise voting voters choose A over B and B over C, but then they may choose C over A This result can obtain even when individual voters' preferences are transitive; hence, the paradox DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: MSC: Definitional Condorcet paradox Assume there are two major political parties: the Conservatives and the Liberals What does the median voter theorem imply about the nature of the platforms (that is, policy stances) of the Conservatives and Liberals? ANS: The median voter theorem implies that political parties will set their platforms so as to appeal to the median ("middle of the distribution") voter Therefore, rather than adopting extreme views, the Conservatives and Liberals will both adopt platforms that are toward the "middle of the road." DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: MSC: Interpretive Median voter theorem How have insights from the field of psychology influenced the thinking of economists in recent years? ANS: Insights from psychology have led some economists to question the assumption of rationality that pervades mainstream economic models Evidence from experimental economics does raise serious questions about the rationality assumption For example, most people may be concerned with the fairness of outcomes, in addition to the impact of those outcomes on their own well-being An open question is: If the rationality assumption does not really reflect the behavior of real economic actors, then how important is it that we model other motivations, such as the desire for fairness, the tendency to procrastinate, overconfidence, etc.? DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: MSC: Interpretive Behavioral economics Sec00 MULTIPLE CHOICE Which of the following is not correct? a b c d Economics is a study of the choices that people make and the resulting interactions they have with one another Economists are not interested in finding new areas to study and new phenomena to explain Economists are trying to expand their understanding of human behavior and society The economics of asymmetric information, political economy, and behavioral economics are all topics at the frontier of microeconomics ANS: B DIF: REF: 22-0 NAT: Analytic LOC: The study of economics, and the definitions of economics TOP: Frontiers of microeconomics MSC: Interpretive Asymmetric information, political economy, and behavioral economics a b c d are topics at the frontier of microeconomics are topics that economists no longer research are being studied as economists try to expand their understanding of human behavior and society both a and c are correct ANS: D DIF: REF: 22-0 NAT: Analytic LOC: The study of economics, and the definitions of economics TOP: Frontiers of microeconomics MSC: Interpretive 210 Chapter 22/Frontiers of Microeconomics When markets fail, which of the following is true? a b c d Government intervention can always improve outcomes Government intervention can potentially improve outcomes Government intervention can never improve outcomes Markets not fail ANS: B DIF: REF: 22-0 NAT: Analytic LOC: The study of economics, and the definitions of economics TOP: Frontiers of microeconomics MSC: Interpretive Sec01-Asymmetric Information MULTIPLE CHOICE In economics, a difference in access to relevant knowledge is called a(n) a b c d relevancy frontier knowledge gap information asymmetry information equilibrium ANS: C DIF: REF: 22-1 NAT: Analytic LOC: The Study of economics, and definitions in economics TOP: Asymmetric information MSC: Definitional Informational asymmetry is a difference in a b c d efficiency equality relevant knowledge signaling ANS: C DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Asymmetric information MSC: Definitional Information asymmetry refers to a b c d the tendency of a person who is imperfectly monitored to engage in dishonest or otherwise undesirable behavior the tendency for the mix of unobserved attributes to become undesirable from the standpoint of an uninformed party an action taken by an informed party to reveal private information to an uninformed party a difference in access to relevant knowledge ANS: D DIF: REF: 22-1 NAT: Analytic LOC: The Study of economics, and definitions in economics TOP: Asymmetric information MSC: Definitional The 2001 Nobel prize in economics was awarded to George Akerlof, Michael Spence, and Joseph Stiglitz for their work on a b c d asymmetric information political economy behavioral economics growth theory ANS: A DIF: REF: 22-1 NAT: Analytic LOC: The Study of economics, and definitions in economics TOP: Asymmetric information MSC: Interpretive Which of the following relationships involves asymmetric information? a b c d An employee knows more than his employer knows about his work effort A borrower knows more than the lender about his ability to repay the loan The seller of a 30-year-old house knows more than the buyer about the condition of the house All of the above are correct Chapter 22/Frontiers of Microeconomics 211 ANS: D DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Asymmetric information MSC: Analytical Which of the following relationships involves asymmetric information? a b c d Patients can look up information regarding certain prescription drugs giving them the same information as their doctors Consumer Reports allows customers of DVD players to know as much about the quality of various players as the store salesperson Car Fax allows car buyers to obtain used-vehicle histories providing them with the same information as the dealership salesperson The batter in a baseball game must guess whether the pitcher is going to throw a fastball, curveball, or change-up ANS: D DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Asymmetric information MSC: Interpretive A driver knows more than his auto insurer about how cautiously he drives This is an example of a b c d a hidden action a hidden characteristic adverse selection the Condorcet Paradox ANS: A DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Asymmetric information MSC: Interpretive Frequently it is the case that: (1) A worker knows more than his employer about how much effort he puts into his job, and (2) the seller of a used car knows more than the buyer about the car's condition a b c d Neither (1) nor (2) serves as an example of asymmetric information Both (1) and (2) serve as examples of asymmetric information Neither (1) nor (2) serves as an example of a hidden action Both (1) and (2) serve as examples of hidden action ANS: B DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Asymmetric information MSC: Analytical Asymmetric information a b c d is not an area of current research in economics can take the form of a hidden action or a hidden characteristic explains Arrow’s impossibility theorem is uncommon in corporate management ANS: B DIF: REF: 22-1 NAT: Analytic LOC: The Study of economics, and definitions in economics TOP: Asymmetric information MSC: Analytical 10 Government action in cases of asymmetric information may not be an ideal solution because a b c d the private market can sometimes deal with information asymmetries on its own the government tends to have more information than private parties both (a) and (b) None of the above is correct ANS: A DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Asymmetric information MSC: Interpretive 212 Chapter 22/Frontiers of Microeconomics 11 Which of the following is an example of informational asymmetry? a b c d A seller of a house knows more about its true condition than does a potential buyer A salesperson knows more about her efforts than does her manager A child knows more about how much time he spent playing video games while he was alone in his bedroom than his parents All of the above are correct ANS: D DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Asymmetric information MSC: Applicative 12 When asymmetric information affects a relationship between two parties, it is always the case that a b c d neither party is well informed one party is better informed than the other party both parties are equally well informed the government is better informed than either of the two parties ANS: B DIF: REF: 22-1 NAT: Analytic LOC: The Study of economics, and definitions in economics TOP: Asymmetric information MSC: Interpretive 13 Which of the following statements is correct? a b c d Hidden actions and hidden characteristics are both associated with the moral-hazard problem Hidden actions and hidden characteristics are both associated with the adverse-selection problem Hidden actions are associated with the moral-hazard problem, whereas hidden characteristics are associated with the adverse-selection problem Hidden actions are associated with the adverse-selection problem, whereas hidden characteristics are associated with the moral-hazard problem ANS: C DIF: REF: 22-1 NAT: Analytic LOC: The Study of economics, and definitions in economics TOP: Asymmetric information MSC: Definitional 14 The problem that arises when one person performs a task on behalf of another person is called a b c d the hidden characteristics problem the lemons problem moral hazard adverse selection ANS: C NAT: Analytic TOP: Moral hazard DIF: REF: 22-1 LOC: The Study of economics, and definitions in economics MSC: Definitional 15 Which of the following is not an example of a principal-agent relationship? a b c d a soccer player and her coach a man and his neighbor an construction worker and his foreman a driver and her insurance agent ANS: B DIF: REF: 22-1 NAT: Analytic LOC: Understanding and applying economic models TOP: Principals; agents MSC: Applicative 16 Which of the following is not an example of a principal trying to solve the moral-hazard problem? a b c d the principal conducts an extensive interview of the agent the principal installs hidden cameras to monitor the agent’s behavior the principal pays the agent efficiency wages the principal pays the agent a year-end bonus ANS: A NAT: Analytic TOP: Moral hazard DIF: REF: 22-1 LOC: Understanding and applying economic models MSC: Applicative Chapter 22/Frontiers of Microeconomics 213 17 Which of the following would be an example of a principal trying to deal with a moral hazard problem? a b c d The parents of an infant secretly place video cameras in their house before the baby-sitter arrives An insurance company checks police records to determine if its policyholders have received traffic citations An employer examines his workers' output on a daily basis All of the above are correct ANS: D NAT: Analytic TOP: Moral hazard DIF: REF: 22-1 LOC: Understanding and applying economic models MSC: Interpretive 18 Which of the following offers an explanation as to why the principal-agent problem exists for a firm? a b c d The firm cares less about profit and more about cost when there are many competitors in the market The firm offers an employee-incentive program in which employees share in the firm’s profits The firm operates in a market with many competitors forcing the firm to pay its employees more to keep them from switching to another firm The firm operates to maximize profit while the employees attempt to work as little as possible to earn their paychecks ANS: D NAT: Analytic TOP: Moral hazard DIF: REF: 22-1 LOC: Understanding and applying economic models MSC: Interpretive 19 Which of the following practices would indicate that an employer is trying to overcome a moralhazard problem with his employees? a b c d The employer pays his workers wages that are unusually high for the industry and region The employer has voluntarily removed video cameras from the factory floor The employer has discontinued the practice of giving his employees' year-end bonuses Both A and B are correct ANS: A NAT: Analytic TOP: Moral hazard DIF: REF: 22-1 LOC: Understanding and applying economic models MSC: Interpretive 20 Which of the following is not an example of moral hazard? a b c d a person with car insurance drives recklessly a pet-sitter being paid to walk a dog for one hour per day only walks the dog for 20 minutes per day a thief steals a car All of the above are examples of moral hazard ANS: C NAT: Analytic TOP: Moral hazard DIF: REF: 22-1 LOC: Understanding and applying economic models MSC: Applicative 21 In the case of a moral-hazard problem, which of the following is not a way for the principal to encourage the agent to act more responsibly? a b c d the principal could better monitor the agent the principal could pay the agent above-equilibrium wages the principal could delay payment to the agent the principal could pay the agent below-equilibrium wages ANS: D NAT: Analytic TOP: Moral hazard DIF: REF: 22-1 LOC: Understanding and applying economic models MSC: Interpretive 214 Chapter 22/Frontiers of Microeconomics 22 Which of the following is not an example of a moral hazard problem? a b c d A manager stays late one evening so that her employee can leave early to attend his child’s music recital A small child takes an extra cookie from the cookie jar when he thinks his mom isn’t watching him closely An employee plays solitaire on her computer at 4:30 p.m on a Friday when her boss has left for the day A customer whose new eyeglasses come with a “60-day insurance policy in case of breakage” leaves her glasses out where her new puppy can chew on them ANS: A NAT: Analytic TOP: Moral hazard DIF: REF: 22-1 LOC: Understanding and applying economic models MSC: Applicative 23 Moral hazard occurs when a b c d an employer closely monitors an employee two people consider a trade with each other and one person has relevant information about some aspect of the product's quality that the other person lacks an employee lacks an incentive to promote the best interests of the employer, and the employer cannot observe the actions of the employee an employee closely monitors the actions of her employer ANS: C NAT: Analytic TOP: Moral hazard DIF: REF: 22-1 LOC: Understanding and applying economic models MSC: Definitional 24 The temptation of imperfectly-monitored workers to shirk their responsibilities is a b c d an example of the moral hazard problem an example of the adverse selection problem an example of screening an example of signaling ANS: A NAT: Analytic TOP: Moral hazard DIF: REF: 22-1 LOC: Understanding and applying economic models MSC: Interpretive 25 Employers can try to overcome the moral-hazard problem involving their employees by a b c d paying their employees more often paying their employees below-equilibrium wages since the employees will likely shirk some of their responsibilities better monitoring their employees' work efforts requiring their employees to take a pre-employment work effort test ANS: C NAT: Analytic TOP: Moral hazard DIF: REF: 22-1 LOC: Understanding and applying economic models MSC: Interpretive 26 Ed was recently hired as a salesman for a national consulting firm His job involves spending a significant portion of his time out of the office visiting prospects and attending conferences His firm is paying him a wage that is higher than the equilibrium wage, but he receives much of his income in quarterly bonuses based on how much he sells a b c d The consulting firm is trying to prevent adverse selection with its compensation strategy Ed has an incentive to go golfing with his buddies rather than conducting sales meetings The consulting firm is responding to the moral hazard problem with its compensation strategy Ed should quit this job and take a job where he gets paid an equilibrium wage more frequently ANS: C NAT: Analytic TOP: Moral hazard DIF: REF: 22-1 LOC: Understanding and applying economic models MSC: Interpretive Chapter 22/Frontiers of Microeconomics 239 68 Refer to Table 22-6 The table shows the preferences for three types of voters over three possible outcomes: X, Y, and Z The table also shows the percentage of voters of each type Based on this information, which of the following statements is true? a b c d In a vote between X and Y, X loses since only the Type voters prefer X to Y In a vote between Y and Z, Y wins getting 80% of the total vote In a vote between X and Z, X loses getting only 45% of the total vote Both a and b ANS: B DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Median voter theorem MSC: Applicative Table 22-7 Number of People 10 13 15 26 Preferred Budget $20 $30 $ $40 $10 $50 69 Refer to Table 22-7 The table shows the most preferred budget of 75 voters In an election, each voter will select the budget closest to his or her most preferred budget Using this information, what is the most preferred budget of the median voter? a b c d $10 $20 $30 $40 ANS: D DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Median voter theorem MSC: Analytical 70 Refer to Table 22-7 The table shows the most preferred budget of 75 voters In an election, each voter will select the budget closest to his or her most preferred budget Which of the following statements regarding this information is true? a b c d In an election between a $33 budget and a $37 budget, the $33 budget will win Since the median voter theorem implies that the budget of the median voter will win the election, we would expect the overall best budget to be $25, the median of the available budgets In an election between a $10 budget and a $40 budget, the $40 budget will win Both b and c ANS: C DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Median voter theorem MSC: Analytical Table 22-8 Percent of electorate First choice Second choice Third choice Fourth choice Type 32 W X Y Z Voter Type Type Type 20 15 X Z Z W W Y Y X Type 33 Y W Z X 240 Chapter 22/Frontiers of Microeconomics 71 Refer to Table 22-8 The table shows the preferences of four types of voters over four possible outcomes: W, X, Y, and Z In addition, the table shows the percentage of voters of each type Based on this information, which of the following statements is false? a b c d Outcome W is preferred to outcome X overall Outcome X is preferred to outcome Y overall Outcome Y is preferred to outcome W overall Outcome W is preferred to outcome Z overall ANS: C DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Condorcet paradox MSC: Analytical 72 Refer to Table 22-8 The table shows the preferences of four types of voters over four possible outcomes: W, X, Y, and Z In addition, the table shows the percentage of voters of each type Suppose a Borda count election is held in which each voter ranks the four outcomes, giving point to last place, points to second to last, points to the second best, and points to the best In this case, which outcome would win? a b c d W X Y Z ANS: A NAT: Analytic TOP: Borda counts DIF: REF: 22-2 LOC: Understanding and applying economic models MSC: Analytical 73 Refer to Table 22-8 The table shows the preferences of four types of voters over four possible outcomes: W, X, Y, and Z In addition, the table shows the percentage of voters of each type Suppose that, for some reason, W is eliminated as a possible option Using a Borda count election, with points for the best choice, points for the second best choice, and point for the last choice, which outcome would win this election? a b c d X Y Z There would be a three-way tie ANS: B NAT: Analytic TOP: Borda counts DIF: REF: 22-2 LOC: Understanding and applying economic models MSC: Analytical Table 22-9 # Voters First choice Second choice Third choice Type 40 C B A Voter Type Type 15 B A C Type 45 A C B 74 Refer to Table 22-9 The table shows the preferences of 100 voters over three possible outcomes: A, B, and C If a Borda count election were held among these voters, giving three points to each voter's first choice, two points to the second choice, and one point to the last choice, which outcome would win the election? a b c d Outcome A Outcome B Outcome C Either outcome A or outcome C since these have the same total score Chapter 22/Frontiers of Microeconomics 241 ANS: C NAT: Analytic TOP: Borda counts DIF: REF: 22-2 LOC: Understanding and applying economic models MSC: Analytical 75 Refer to Table 22-9 The table shows the preferences of 100 voters over three possible outcomes: A, B, and C Which of the following statements is true? a b c d In pairwise majority voting, B is preferred to A, A is preferred to C, and B is preferred to C In pairwise majority voting, C is preferred to B, B is preferred to A, and C is preferred to A In pairwise majority voting, B is preferred to A, A is preferred to C, and C is preferred to B In pairwise majority voting, A is preferred to C, C is preferred to B, and A is preferred to B ANS: C DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Condorcet paradox MSC: Analytical 76 Suppose that in a Borda count election, outcome X is preferred to outcome Y, and outcome Y is preferred to outcome Z, when outcomes X, Y, and Z are all available options When Y is removed as an option, however, outcome Z is preferred to outcome X This would violate Arrow's assumption that voting systems should satisfy a b c d unanimity transitivity the independence of irrelevant alternatives no dictators ANS: C DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Arrow's impossibility theorem MSC: Interpretive 77 Which of the following would violate transitivity? a b c d John likes A more than B, C more than B, and C more than A Steve likes C more than B, A more than B, B more than D, and C more than D Sarah likes C more than A, B more than D, A more than B, and D more than C Mitch likes C more than B, C more than D, and B more than D ANS: C NAT: Analytic TOP: Transitivity DIF: REF: 22-2 LOC: Understanding and applying economic models MSC: Analytical 78 Suppose that there are 175 voters in an election and that 80 of them prefer a $100 budget while the remainder prefer a $150 budget Which of the following statements is true? a b c d The Condorcet Paradox predicts that the $100 budget will win even though fewer people prefer that budget The median voter theorem predicts that the winning budget will be $125, the median of the preferences of the two types of voters Arrow's impossibility theorem says that the winning budget cannot be determined in this election since there is no unanimity None of the above ANS: D DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Median voter theorem MSC: Analytical Scenario 22-2 The following table shows the preferences for the five voters in a city regarding how to deal with the city’s diseased trees Voter # 1st choice 2nd choice 3rd choice 4th choice B C D A B C A D C D A B D C A B A C D B 242 Chapter 22/Frontiers of Microeconomics A = nothing B = Follow the expert's advice to remove every tree C = remove every 4th tree now and perhaps more later D = use an untested spraying alternative 79 Refer to Scenario 22-2 Consider the public policy for dealing with the diseased trees Using pairwise majority voting with A versus B, then the winner of that vote versus C, then the winner of that vote versus D, which policy wins? a b c d A B C D ANS: C NAT: Analytic TOP: Voting DIF: REF: 22-2 LOC: Understanding and applying economic models MSC: Applicative 80 What is the name of the mathematical result showing that no voting system can simultaneously satisfy the properties of unanimity, transitivity, independence of irrelevant alternatives, and no dictators? a b c d The fundamental theorem of behavioral economics Arrow's impossibility theorem The fundamental theorem of voting The median voter theorem ANS: B DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Arrow's impossibility theorem MSC: Definitional 81 One implication of the Condorcet paradox is a b c d that the order in which things are voted on can affect the result that the order in which things are voted on is irrelevant that you not want to be in charge of arranging which items are voted upon first that when there are only two items being voted on the order matters ANS: A DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Condorcet paradox MSC: Interpretive 82 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 b c d Average voter Mean voter Modal voter Median voter ANS: D DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Median voter theorem MSC: Definitional 83 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? a b c d $2,000 $4,000 $7,000 $12,000 ANS: B DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Median voter theorem MSC: Analytical Chapter 22/Frontiers of Microeconomics 243 84 The median-voter theorem explains why a b c d politicians take extreme stands on issues voters are attracted to political outsiders two opposing politicians tend to take opposite sides of each issues politicians tend to take middle-of-the-road positions ANS: D DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Median voter theorem MSC: Interpretive Scenario 22-3 Three candidates, Frank, Brian, and Wanda, are running for office There are three voters in the upcoming election: Henry, Diane, and Linda Henry prefers Brian over Frank and Frank over Wanda Diane prefers Wanda over Brian and Brian over Frank Linda prefers Frank over Brian and Brian over Wanda 85 Refer to Scenario 22-3 If the voters were given a choice of Frank versus Brian first, then the winner was in a second election versus Wanda, who would win? a b c d Frank Brian Wanda There is not enough information to answer this question ANS: B DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Condorcet paradox MSC: Applicative 86 Refer to Scenario 22-3 If the voters were given a choice of Frank versus Wanda first, then the winner was in a second election versus Brian, who would win? a b c d Frank Brian Wanda There is not enough information to answer this question ANS: B DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Condorcet paradox MSC: Applicative 87 Refer to Scenario 22-3 If the voters were given a choice of Brian versus Wanda first, then the winner was in a second election versus Frank, who would win? a b c d Frank Brian Wanda There is not enough information to answer this question ANS: B DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Condorcet paradox MSC: Applicative Scenario 22-4 Suppose that residents of a town are asked to vote on the best way to improve the safety of an intersection The three choices are: a stoplight, a 4-way stop, and a 2-way stop The voters are divided into three groups based on their preferences Voter Type Percent of Electorate 1st Choice 2nd Choice 3rd Choice Type 40 4-way stop 2-way stop stoplight Type 40 stoplight 4-way stop 2-way stop Type 20 2-way stop 4-way stop stoplight 244 Chapter 22/Frontiers of Microeconomics 88 Refer to Scenario 22-4 If the first vote pits a stoplight against a 4-way stop and the second vote pits a 2-way stop against the winner of the first vote, then the outcome is as follows: a b c d 4-way stop wins the first vote and 4-way stop wins the second vote, so the town installs a 4-way stop 4-way stop wins the first vote and 2-way stop wins the second vote, so the town installs a 2-way stop Stoplight wins the first vote and stoplight wins the second vote, so the town installs a stoplight Stoplight wins the first vote and 2-way stop wins the second vote, so the town installs a 2-way stop ANS: A DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Pairwise voting MSC: Applicative 89 Refer to Scenario 22-4 If the first vote pits a 2-way stop against a 4-way stop and the second vote pits a stoplight against the winner of the first vote, then the outcome is as follows: a b c d 2-way stop wins the first vote and 2-way stop wins the second vote, so the town installs a 2-way stop 2-way stop wins the first vote and stoplight wins the second vote, so the town installs a stoplight 4-way stop wins the first vote and 4-way stop wins the second vote, so the town installs a 4-way stop 4-way stop wins the first vote and stoplight wins the second vote, so the town installs a stoplight ANS: C DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Pairwise voting MSC: Applicative 90 Refer to Scenario 22-4 If the first vote pits a 2-way stop against a stoplight and the second vote pits a 4-way stop against the winner of the first vote, then the outcome is as follows: a b c d 2-way stop wins the first vote and 2-way stop wins the second vote, so the town installs a 2-way stop 2-way stop wins the first vote and 4-way stop wins the second vote, so the town installs a 4-way stop Stoplight wins the first vote and stoplight wins the second vote, so the town installs a stoplght Stoplight wins the first vote and 4-way stop wins the second vote, so the town installs a 4-way stop ANS: B DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Pairwise voting MSC: Applicative 91 Refer to Scenario 22-4 Which of the following statements is correct regarding the Condorcet paradox and the results of pairwise voting on how to improve the safety of the intersection? a b c d The paradox implies that pairwise voting never produces transitive preferences, and so the voting in the town fails to produce transitive preferences The paradox implies that pairwise voting sometimes (but not always) fails to produce transitive preferences, but the voting in the town does produce transitive preferences The paradox implies that pairwise voting sometimes (but not always) fails to produce transitive preferences, and the voting in the town fails to produce transitive preferences The paradox implies that pairwise voting always produces transitive preferences, and so the voting in the town produces transitive preferences ANS: B DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Condorcet paradox MSC: Interpretive 92 Refer to Scenario 22-4 If the vote were conducted according to a Borda count system where each person's first choice receives points, second choice points, and third choice point, the result would be a b c d a 2-way stop a 4-way stop a stoplight a tie between a 2-way stop and a stoplight Chapter 22/Frontiers of Microeconomics 245 ANS: B NAT: Analytic TOP: Borda counts DIF: REF: 22-2 LOC: Understanding and applying economic models MSC: Applicative 93 Refer to Scenario 22-4 Based on the information in the table, which of the following statements is true? a b c d In a vote between a 2-way stop and a stoplight, stoplight wins because 40% of voters have stoplight as their 1st choice In a vote between a 2-way stop and a 4-way stop, the 4-way stop wins getting 80% of the total vote In a vote between a 4-way stop and a stoplight, there is a tie because each gets 40% of the vote None of the above are true ANS: B DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Median voter theorem MSC: Applicative 94 Economic policy that appears to be ideal in an economics textbook may not be the final policy that is approved by elected politicians because a b c d sometimes a politician’s self interest may conflict with the national interest economics professors have a notoriously low voting rate only policies advocated by the President’s Council of Economic Advisors receive enough national attention to interest politicians Economists cannot explain why politicians not implement the ideas from their textbooks ANS: A DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Political economy MSC: Interpretive 95 Economic theory assumes that voters, politicians, and other political participants are largely motivated by a b c d personal self-interest altruism a desire to promote the general welfare a desire to promote allocative economic efficiency ANS: A DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Political economy MSC: Interpretive 96 Which of the following statements is not true about the 2002 Farm Security Act? a b c d The Act provides funding to improve national security The stated purpose of the Act is to provide farmers with price stability The “farmers” receiving money from the Act include Ted Turner and Charles Schwab The Act provides subsidies to farmers of mohair, chickpeas, and lentils ANS: A DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Political economy MSC: Interpretive 97 One likely motivation for politicians to pass the 2002 Farm Security Act was a b c d to improve national security to provide price stability for farmers votes from constituents who benefit from the Act Both b and c are correct ANS: C DIF: REF: 22-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Political economy MSC: Interpretive 246 Chapter 22/Frontiers of Microeconomics Sec03-Behavioral Economics MULTIPLE CHOICE Economists use basic psychological insights in the field of study called a b c d psychological economics transitional economics behavioral economics social economics ANS: C DIF: REF: 22-3 NAT: Analytic LOC: The Study of economics, and definitions in economics TOP: Behavioral economics MSC: Definitional Most economic models a b c d incorporate the assumption of rational behavior on the part of economic actors incorporate the notion that people are usually reluctant to change their minds are meant to precisely duplicate reality assume that people often make sub-optimal choices ANS: A DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive When economists assume that people are rational, they assume that a b c d consumers maximize profits firms maximize revenues consumers maximize utility firms maximize output ANS: C DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive Conventional economic theory assumes that people a b c d care a great deal about fairness are inconsistent over time in their decisionmaking are rational are satisficers ANS: C DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive Herbert Simon suggested that people are not rational maximizers but satisficers, meaning that they choose a course of action that is a b c d personally satisfying, with a greater emphasis on personal consumption than on fairness socially satisfying, with a greater emphasis on fairness than on personal consumption good enough risk averse ANS: C NAT: Analytic TOP: Satisficers DIF: REF: 22-3 LOC: Understanding and applying economic models MSC: Definitional A "satisficer" is a person who a b c d always chooses the best course of action often chooses the worst course of action makes decisions that are merely good enough studies both economics and psychology ANS: C DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Definitional Chapter 22/Frontiers of Microeconomics 247 A person who makes decisions that are "merely good enough" is called a(n) a b c d optimizer rational person satisficer maxi-minimizer ANS: C DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Definitional The suggestion that people are "satisficers" is similar to the view that people a b c d are wealth-maximizers exhibit "bounded rationality." go to a lot of trouble to weigh costs and benefits before choosing a course of action change their minds often ANS: B DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive Which of the following is an example of satisficing behavior? a b c d You continue studying for your economics exam until you believe you’ll get a perfect score You spend time looking over the lettuce at the grocery store in order to make sure you get the best head of lettuce You briefly clean your room because that's all it takes to get it "clean enough." You carefully plan your day in order to get "the most out of life." ANS: C DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 10 Which of the following students exhibits satisficing behavior? a b c d Alex studies his economics notes every night so that he can be sure to earn a perfect score on his exam Brody studies his economics notes for a few hours the night before the test because he will be satisfied with a C on his exam Camilla studies extensively as she will only be satisfied with a very high score None of these students exhibits satisficing behavior ANS: B DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 11 Studies of human decision-making show that a b c d firms are less likely to maximize profits than consumers are to maximize utility firms are more likely to maximize profits than consumers are to maximize utility people are irrational more often than they are rational people are reluctant to change their minds ANS: D DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 12 Based on the studies of human decision making, which of the following statements is correct? a b c d Most people are not bothered by perceived unfairness as long as they receive some compensation, even if the amount is very small Most people are very willing to change their minds Many people’s preferences are inconsistent over time All of the above are correct ANS: C DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 248 Chapter 22/Frontiers of Microeconomics 13 Studies of human decision-making have detected systematic mistakes that people make Which of the following have been detected? a b c d people are overconfident people give too much weight to a small number of vivid observations people are reluctant to change their minds All of the above ANS: D DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 14 Some of the systematic mistakes that people make include a b c d being overconfident placing too much weight on events that are more vivid compared to those with greater statistical probability being generally unwilling to change their minds All of the above are correct ANS: D DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 15 Economic theory assumes people are always rational Yet observation indicates that people not always behave rationally Which of the following is not a systematic mistake people make in their decisionmaking? a b c d People often interpret information to fit beliefs already held People place too much emphasis in their decisionmaking on a few extreme situations of which they are aware People tend to view current prices differently than they view future prices People are too sure of their own abilities ANS: C NAT: Analytic TOP: Rationality DIF: REF: 22-3 LOC: Understanding and applying economic models MSC: Interpretive 16 Denzel travels a great deal, and over the past several years he has read dozens of reviews of hotel chains, all of which rave about the clean rooms and great service at Stay Here hotels Last month, Denzel checked into a room at a Stay Here hotel for the first time, only to find the room filthy and the service lousy He decided the Stay Here chain is inferior to other hotel chains a b c d Denzel was irrational to have believed the reviews that he had read Denzel was rational to have changed his mind about Stay Here hotels based on his one experience Denzel is an example of someone who gives too much weight to a small number of vivid observations Denzel is an example of someone who is reluctant to change his mind ANS: C DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 17 A survey of 1,500 frequent restaurant patrons revealed that, Julio’s, a local Mexican restaurant offers high-quality food at low prices Based on one dining experience, a restaurant critic gave Julio’s a poor review, saying the food was not very good As a result, you decide not to dine at Julio’s This decision is an example of which of the following systematic mistakes that people make when making decisions? a b c d People are overconfident People give too much weight to a small number of vivid observations People are reluctant to change their minds All of the above ANS: B DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive Chapter 22/Frontiers of Microeconomics 249 18 Evidence from studies of workers' choices on whether to participate in 401(k) plans suggests that the workers' behavior appears to exhibit a b c d indifference ignorance inertia indecision ANS: C DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 19 Neuro-economists a b c d study how emotions influence peoples’ choices have found that people are more likely to take a foolish risk when they are in a “positive arousal state.” have found that brains assess risk and return separately All of the above are correct ANS: D DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 20 The frontier field of economics that studies how emotions influence peoples’ choices is known as a b c d emotive-economics neuro-economics brain-economics feeling-economics ANS: B DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 21 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 b c d people are overconfident people give too much weight to a small number of vivid observations people are reluctant to change their minds All of the above ANS: C DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 22 Bob is a contestant on a trivia quiz show For every state capital he can correctly identify, he will win $1,000 However, before identifying any capitals, he must decide how many he thinks he can correctly identify If he cannot identify as many as he has wagered, Bob will not win any money Suppose Bob says that he can correctly identify 42 state capitals for a potential payoff of $42,000 According to studies of human decision-making, what is most likely to happen? a b c d Bob will be able to identify 42 state capitals and he will win $42,000 Bob will be able to identify fewer than 42 state capitals and will not win any money Bob will not be able to identify any state capitals and will not win any money Bob will choose to save all of the money he wins on the quiz show for his retirement ANS: B DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 250 Chapter 22/Frontiers of Microeconomics 23 Suppose a group of people read an article on capital punishment Prior to reading the article, 60% of the members of the group were opposed to capital punishment, while 40% of the members of the group were in favor of capital punishment According to studies of human decision-making, which of the following is likely? a b c d After reading the article, all members of the group oppose capital punishment After reading the article, all members of the group are in favor of capital punishment After reading the article, 60% of the members of the group are opposed and 40% of the members of the group are in favor of capital punishment The members of the group would elect a representative in favor of capital punishment ANS: C DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 24 Students of microeconomic principles often say they are going to study "tonight," because the only way to pass the exam is to study some every night When "tonight" comes, some students choose to something else Come exam-day, these students not well on their exam This observation is an example of how people a b c d are inconsistent over time are consistent over time are mainly interested in fairness are rational ANS: A DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 25 Conventional economic theory suggests that in the ultimatum game, the player proposing a split of $100 will propose that she get $99 and that the other player get $1 By the same reasoning, if the amount to be split is $200, the player proposing the split will propose that she gets a b c d $100 and that the other player gets $100 $198 and that the other player gets $2 $199 and that the other player gets $1 $200 and that the other player gets nothing ANS: C DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 26 The results of the ultimatum game illustrate the fact that a b c d people's behavior is often driven by an innate sense of fairness homo economicus is a good description of people's behavior self-interest brings out the most efficient economic outcome Both b and c are correct ANS: A DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 27 Experiments show that when real people play the ultimatum game, starting with $100, a b c d Player A usually proposes giving Player B more than $50 Player B usually accepts Player A's proposal if Player A proposes giving Player B $30 or $40 players show themselves to be rational wealth-maximizers Both B and C are correct ANS: B DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive Chapter 22/Frontiers of Microeconomics 251 28 Evidence points to the fact that, in the real world, people appear to care about fairness a b c d only when it coincides with their own self-interest only when it coincides with their determination to be consistent over time even when it does not coincide with their own self-interest not at all ANS: C DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 29 Evidence from experiments in which real people play the ultimatum game supports the idea that people a b c d are rational wealth-maximizers tend to be driven by fairness, without regard for their own self-interest are driven by both fairness and self-interest have trouble calculating their own levels of wealth ANS: C DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 30 Suppose that an economics professor selects two students, Rudy and Rhonda, to participate in a classroom experiment The professor gives Rudy ten $1 bills Rudy must pick an allocation of the ten $1 bills to offer to Rhonda If Rhonda accepts the allocation, each student keeps his or her portion of the money If Rhonda rejects the allocation, the professor keeps the $10, and each student receives nothing Rudy selects $9 for himself and $1 for Rhonda Based on the studies of human decision making, which of the following statements is correct? a b c d If Rhonda accepts the offer, she is behaving rationally If Rhonda rejects the offer, she may value fairness more than $1 If Rhonda rejects the offer, Rudy made a bad choice by trying to keep $9 for himself Any of the above could be correct ANS: D DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 31 Brian and Andrea are playing the ultimatum game, starting with $100 The coin flip results in Brian being the one to propose a division of the $100 Brian proposes that he gets $99 and Andrea gets $1 a b c d Because the 99-1 split isn’t fair, Brian should not make this offer Conventional economic theory predicts that Brian will propose a 99-1 split, just as he did Experimental evidence suggests that Andrea will accept the 99-1 split because, even though it isn’t fair, it’s better than nothing Economic theory predicts that Brian should choose a 60-40 split to maximize his payoff ANS: B DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Analytical 32 Eli and Peyton are playing the ultimatum game, starting with $100 The coin flip results in Eli being the one to propose a division of the $100 If Eli acts as economic theory assumes, he should propose that a b c d he gets $30 and Peyton gets $70 he gets $50 and Peyton gets $50 he gets $60 and Peyton gets $40 he gets $99 and Peyton gets $1 ANS: D DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Analytical 252 Chapter 22/Frontiers of Microeconomics 33 The ultimatum game reveals that a b c d it does not make sense to try to maximize profits people may have an innate sense of fairness that economic theory does not capture offering someone a wildly unfair outcome is usually ok since people tend to make decisions using a "something is better than nothing" philosophy Both a and b ANS: B DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Ultimatum game MSC: Interpretive 34 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 a b c d Although player A is acting as economic theory usually assumes, he or she makes such offers because they seem more fair Although player A is acting as economic theory usually assumes, he or she makes such offers although they are not fair Although player A is not acting as economic theory usually assumes, he or she makes such offers because they seem more fair Although player A is not acting as economic theory usually assumes, he or she makes such offers because they are not fair ANS: C DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 35 Betty knows that she needs to save 20% of her annual income for retirement However, she spends 90% of her income each year This is an indication that Betty's preferences are a b c d irrational inconsistent over time satisficing rather than maximizing undefined ANS: B DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 36 According to one survey 76 percent of Americans said they were not saving enough for retirement This example of inconsistency over time a b c d is rational behavior likely occurs because saving requires a sacrifice in the present for a reward in the distant future likely occurs because Americans don’t care about retirement definitely would not happen if Americans earned a greater return on their investments ANS: B DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive 37 Behavioral economics a b c d integrates psychological insights into economic models relies on the assumption that homo economicus describes economic decision-making assumes that economic agents have full information about the conditions surrounding their decisions All of the above are correct ANS: A DIF: REF: 22-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Behavioral economics MSC: Interpretive Chapter 22/Frontiers of Microeconomics 253 38 Which of the following statements is correct? a b c d ANS: NAT: TOP: MSC: Based on studies of human decision making, most people are overconfident in their own abilities Arrow’s impossibility theorem disproves the median voter theorem Romantic gifts are an example of adverse selection An efficiency wage encourages workers to shirk A DIF: REF: 22-3, 22-2, 22-1 Analytic LOC: Understanding and applying economic models Behavioral economics, political economy, asymmetric information Analytical 39 Which of the following statements is not correct? a b c d ANS: NAT: TOP: MSC: Based on studies of human decision making, most people value fairness Based on studies of human decision making, some people’s preference are inconsistent over time Government intervention is the best remedy for the problems caused by asymmetric information Advertising can be an example of a company signaling the quality of its products C DIF: REF: 22-3, 22-2, 22-1 Analytic LOC: Understanding and applying economic models Behavioral economics, political economy, asymmetric information Analytical 40 Which of the following statements is not correct? a b c d ANS: NAT: TOP: MSC: Majority rule explains why politicians appeal to the middle of the voting distribution Based on studies of human decision making, most people prefer to procrastinate, both in the immediate future and in the distant future Screening refers to an uninformed party trying to extract information from an informed party Advertising can be an example of a company signaling the quality of its products B DIF: REF: 22-3, 22-2, 22-1 Analytic LOC: Understanding and applying economic models Behavioral economics, political economy, asymmetric information Analytical ... another party credibly revealing private information 222 Chapter 22/ Frontiers of Microeconomics ANS: D NAT: Analytic TOP: Signaling DIF: REF: 22- 1 LOC: The Study of economics, and definitions... Chapter 22/ Frontiers of Microeconomics 227 ANS: A DIF: REF: 22- 2 NAT: Analytic LOC: Understanding and applying economic models TOP: Condorcet paradox MSC: Applicative Refer to Table 22- 1 If... signaling ANS: B DIF: REF: 22- 1 NAT: Analytic LOC: Understanding and applying economic models TOP: Adverse selection, moral hazard, signaling MSC: Interpretive 220 Chapter 22/ Frontiers of Microeconomics