Question 1

What are the two basic problems involving asymmetric information

Accepted Answer

A) moral dilemma and inverse-risk selection 
B) moral dilemma and adverse selection 
C) moral hazard and inverse-risk selection 
D) moral hazard and adverse selection 
A) moral dilemma and inverse-risk selection 
B) moral dilemma and adverse selection 
C) moral hazard and inverse-risk selection 
D) moral hazard and adverse selection D

Question 2

When asymmetric information affects a relationship between two parties,what is always the case

Accepted Answer

A) Neither party is well informed. 
B) One party is better informed than the other party. 
C) Both parties are equally well informed. 
D) The government is better informed than either of the two parties. 
A) Neither party is well informed. 
B) One party is better informed than the other party. 
C) Both parties are equally well informed. 
D) The government is better informed than either of the two parties. B

Question 3

What does the Arrow impossibility theorem show

Accepted Answer

A) Democracy should be abandoned as a form of government. 
B) It is impossible to improve upon democratic voting methods as a mechanism for social choice. 
C) All voting systems are flawed as mechanisms for social choice. 
D) It is impossible to identify the median voter. 
A) Democracy should be abandoned as a form of government. 
B) It is impossible to improve upon democratic voting methods as a mechanism for social choice. 
C) All voting systems are flawed as mechanisms for social choice. 
D) It is impossible to identify the median voter. C

Question 4

The Feel Better Health Insurance Company is thinking about raising its rates for insurance.Which outcome is the least likely to happen if it does

Accepted Answer

A) The percentage of its customers who are generally healthy will fall. 
B) The number of its customers with hidden health problems will fall. 
C) The number of customers who are generally healthy will fall. 
D) The firm's profit per customer will rise. 
A) The percentage of its customers who are generally healthy will fall. 
B) The number of its customers with hidden health problems will fall. 
C) The number of customers who are generally healthy will fall. 
D) The firm's profit per customer will rise.

Question 5

Conventional economic theory suggests that in the ultimatum game,the player proposing a split of $100 will propose that she gets $99 and that the other player gets $1.By the same reasoning,if the amount to be split is $200,what would the player proposing the split propose

Accepted Answer

A) that she gets $100 and that the other player gets $100 
B) that she gets $198 and that the other player gets $2 
C) that she gets $199 and that the other player gets $1 
D) that she gets $200 and that the other player gets $0 
A) that she gets $100 and that the other player gets $100 
B) that she gets $198 and that the other player gets $2 
C) that she gets $199 and that the other player gets $1 
D) that she gets $200 and that the other player gets $0

Question 6

Explain what is meant by "asymmetric information." Identify and explain the two basic types of problems that arise when there is asymmetric information.

Accepted Answer

Asymmetric information is present when t

Question 7

What is a person who makes decisions that are "merely good enough" called

Accepted Answer

A) an optimizer 
B) a rationalizer 
C) a satisficer 
D) a minimizer 
A) an optimizer 
B) a rationalizer 
C) a satisficer 
D) a minimizer

Question 8

Majority rule will produce the outcome most preferred by the median voter.

Accepted Answer

A) True 
 B)False

Question 9

An implication of the median voter theorem is that Conservatives and Liberals will try to align their views with those of the median voter.

Accepted Answer

A) True 
 B)False

Question 10

A seller of a used car knows more than the buyer about the car's condition.What is this an example of

Accepted Answer

A) a hidden action; specifically, it is an example of a hidden characteristic 
B) a hidden characteristic; specifically, it is an example of a hidden action 
C) an information asymmetry; specifically, it is an example of a hidden action 
D) an information asymmetry; specifically, it is an example of a hidden characteristic 
A) a hidden action; specifically, it is an example of a hidden characteristic 
B) a hidden characteristic; specifically, it is an example of a hidden action 
C) an information asymmetry; specifically, it is an example of a hidden action 
D) an information asymmetry; specifically, it is an example of a hidden characteristic

Question 11

Evidence from experiments in which real people play the ultimatum game supports which idea about people

Accepted Answer

A) They are rational wealth-maximizers. 
B) They tend to be driven by fairness, without regard for their own self-interest. 
C) They are driven by both fairness and self-interest. 
D) They have trouble calculating their own levels of wealth. 
A) They are rational wealth-maximizers. 
B) They tend to be driven by fairness, without regard for their own self-interest. 
C) They are driven by both fairness and self-interest. 
D) They have trouble calculating their own levels of wealth.

Question 12

In view of the possible need for government action in markets where asymmetric information is a problem,which consideration is most valid

Accepted Answer

A) The government almost always has more information than the private parties. 
B) Private markets have no means of dealing with information asymmetries on their own. 
C) The government is itself an imperfect institution. 
D) Government intervention will exacerbate any market failures. 
A) The government almost always has more information than the private parties. 
B) Private markets have no means of dealing with information asymmetries on their own. 
C) The government is itself an imperfect institution. 
D) Government intervention will exacerbate any market failures.

Question 13

How can we use the theories of asymmetric information to analyze the 2007-2009 financial crisis

Accepted Answer

Asymmetric information makes lending mon

Question 14

Table 22-2
Voters are deciding how they will spend the City of Elmongary's budget surplus.They have enough money to build one of three projects: build a school, build a skate park, or build a bike lane for commuters.They agree that they will have two pairwise votes to determine how to spend their budget, with the majority determining the outcome on each vote.The first, second, and third choices for each project are as indicated in the table below.  
-Refer to Table 22-2.Which statement regarding the Condorcet paradox and the results of pairwise voting in Elmongary is most accurate

Accepted Answer

A) The paradox implies that pairwise voting never produces transitive preferences, and so the voting in Elmongary fails to produce transitive preferences. 
B) The paradox implies that pairwise voting sometimes (but not always) produces transitive preferences, and the voting in Elmongary does produce transitive preferences. 
C) The paradox implies that pairwise voting sometimes (but not always) fails to produce transitive preferences, and the voting in Elmongary fails to produce transitive preferences. 
D) The paradox implies that pairwise voting almost never produces transitive preferences, but the voting in Elmongary does produce transitive preferences. 
A) The paradox implies that pairwise voting never produces transitive preferences, and so the voting in Elmongary fails to produce transitive preferences. 
B) The paradox implies that pairwise voting sometimes (but not always) produces transitive preferences, and the voting in Elmongary does produce transitive preferences. 
C) The paradox implies that pairwise voting sometimes (but not always) fails to produce transitive preferences, and the voting in Elmongary fails to produce transitive preferences. 
D) The paradox implies that pairwise voting almost never produces transitive preferences, but the voting in Elmongary does produce transitive preferences.

Question 15

The suggestion that people are satisficers is similar to which view

Accepted Answer

A) People are wealth-maximizers. 
B) People are "near rational" 
C) People go to a lot of trouble to weigh costs and benefits before choosing a course of action. 
D) People frequently change their minds. 
A) People are wealth-maximizers. 
B) People are "near rational" 
C) People go to a lot of trouble to weigh costs and benefits before choosing a course of action. 
D) People frequently change their minds.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

"People are too sure of their own abilities." What can be said about this observation

Accepted Answer

A) It is at odds with traditional economic theory. 
B) It is at odds with evidence from experimental psychology. 
C) It supports the idea that people are rational in their decision-making processes. 
D) It assumes that people do not act out of self-interest. 
A) It is at odds with traditional economic theory. 
B) It is at odds with evidence from experimental psychology. 
C) It supports the idea that people are rational in their decision-making processes. 
D) It assumes that people do not act out of self-interest.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

What can we say about the problem of asymmetric information

Accepted Answer

A) It always arises from government intervention in private markets. 
B) It serves as a possible rationale for government intervention in private markets. 
C) It always amounts to a moral hazard problem. 
D) It does not affect prices consumers are willing to pay in the market. 
A) It always arises from government intervention in private markets. 
B) It serves as a possible rationale for government intervention in private markets. 
C) It always amounts to a moral hazard problem. 
D) It does not affect prices consumers are willing to pay in the market.

Question 20

XYZ Company pays its workers very well.The wages of workers at XYZ significantly exceed regional and national averages for people who do similar work.In fact,all indications are that XYZ workers' wages are well above equilibrium levels.What might explain the fact that XYZ pays its workers so well

Accepted Answer

A) There is no problem of asymmetric information at XYZ between the company's management and its workers. 
B) Workers at XYZ have never demonstrated any tendency to shirk. 
C) XYZ wants to maintain a good mix of workers in terms of their true abilities. 
D) XYZ is not worried about lemons. 
A) There is no problem of asymmetric information at XYZ between the company's management and its workers. 
B) Workers at XYZ have never demonstrated any tendency to shirk. 
C) XYZ wants to maintain a good mix of workers in terms of their true abilities. 
D) XYZ is not worried about lemons.

Exam 22: Frontiers of Microeconomics

What are the two basic problems involving asymmetric information

When asymmetric information affects a relationship between two parties,what is always the case

What does the Arrow impossibility theorem show

The Feel Better Health Insurance Company is thinking about raising its rates for insurance.Which outcome is the least likely to happen if it does

Conventional economic theory suggests that in the ultimatum game,the player proposing a split of $100 will propose that she gets $99 and that the other player gets $1.By the same reasoning,if the amount to be split is $200,what would the player proposing the split propose

Explain what is meant by "asymmetric information." Identify and explain the two basic types of problems that arise when there is asymmetric information.

What is a person who makes decisions that are "merely good enough" called

Majority rule will produce the outcome most preferred by the median voter.

An implication of the median voter theorem is that Conservatives and Liberals will try to align their views with those of the median voter.

A seller of a used car knows more than the buyer about the car's condition.What is this an example of

Evidence from experiments in which real people play the ultimatum game supports which idea about people

In view of the possible need for government action in markets where asymmetric information is a problem,which consideration is most valid

How can we use the theories of asymmetric information to analyze the 2007-2009 financial crisis

The suggestion that people are satisficers is similar to which view

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

"People are too sure of their own abilities." What can be said about this observation

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

What can we say about the problem of asymmetric information

XYZ Company pays its workers very well.The wages of workers at XYZ significantly exceed regional and national averages for people who do similar work.In fact,all indications are that XYZ workers' wages are well above equilibrium levels.What might explain the fact that XYZ pays its workers so well

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, demand, and Government Policies

Consumers, producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

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