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Exam 22: Frontiers of Microeconomics

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Question 221

Multiple Choice

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Table 22-12 The following table shows the preferences for the five voters in a city regarding how to deal with the city's diseased trees. A = do 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 -Refer to Table 22-12. Consider the public policy for dealing with the diseased trees. Using a Borda count with 4 points assigned to the first choice, 3 points assigned to the second choice, 2 points assigned to the third choice, and 1 point assigned to the fourth choice, which policy wins?

A) A
B) B
C) C
D) D

E) All of the above
F) A) and C)

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Question 222

Multiple Choice

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Table 22-1 Three friends -- Linda, Stephanie, and Jamie -- are deciding where to go together for vacation. They all agree that they should go to one of three places: France, Greece, or Italy. They also agree that they will have two pairwise votes to determine where to go on vacation, with the majority determining the outcome on each vote. The first, second, and third choices for each person are as indicated in the table below. -Refer to Table 22-1. Depending on the order of the pairwise voting,

A) the friends could go to either France, Italy, or Greece.
B) the friends could go to either France or Italy, but they will not go to Greece.
C) the friends could go to either Italy or Greece, but they will not go to France.
D) the friends could go to either France or Greece, but they will not go to Italy.

E) A) and B)
F) All of the above

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Question 223

True/False

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Economic experiments show that people care more about winning a game than about its intrinsic fairness.

Assume there are 4065 voters in a certain small town and let x = the preferred number of dollars charged monthly to support local parks. For Voters 1-1050, x = $10; for voters 1051-2121, x= $20, for voters 2122-3334, x = $30; for voters 3335-3998, x = $40; and for 3999-4065, x = $50. Based on these preferences, which of the dollar amounts will win over any of the others?

A street vendor sells a replica of a pair of designer shoes to a young woman who believes the shoes are authentic. The street vendor is engaging in

Scenario 22-6 Shana owns a boutique that sells high­end women's clothing and accessories. Katie works part-time at the boutique and frequently is the only employee in this small store. Shana pays Katie a wage that is higher than the market wage for this type of job. When the store is not full of customers, Katie diligently works on displays and cleans to keep the store looking its best. Belinda is a customer in the store who asks Katie's opinion on the quality of some jeans she is considering purchasing. Katie tells her the quality is great even though she's had several other customers return them due to flaws. Magda is another customer who is returning a necklace without volunteering that a gem is missing. -Refer to Scenario 22-6. Why do you suppose Shana pays Katie a wage higher than the market wage?

Table 22-5 The citizens of Anytown will decide whether to build a new library, a recreation center, or an arena. 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. Voter Type -Refer to Table 22-5. If the citizens of Anytown use a Borda count, rather than pairwise majority voting, to decide what to build, then they will build a new

Which of the following is an example of asymmetric information?

The state of Massachusetts requires all citizens to purchase medical insurance or face a monetary penalty when filing their taxes. The penalty is significantly less than the average annual insurance premium. Moreover, the state requires insurance companies to issue policies to anyone who applies, regardless of their health at the time of application. Which of the following examples describes the inherent adverse selection problem?

Based on studies of human decision making, many people care more about the fairness of a game than about their personal winnings.

The mathematical result showing that, under certain assumptions, there is no scheme for aggregating individual preferences into a valid set of social preferences is called

Studies of human decision making reveal several systematic mistakes people make. Which of the following is not an example of one of these mistakes?

Table 22-24 The citizens of Mayville are having a severe budget shortage and are faced with eliminating athletics from the town high school. The town administrator has determined that the town can afford to maintain one sport. 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. Voter Type -Refer to Table 22-24. If the town administrator asks voters to choose first between hockey and basketball and then between the winner of the first vote and football, which sport will win the final vote?

A "satisficer" is a person whose decision making is the same as that predicted by mainstream economic models.

A woman gives her boyfriend a birthday present. The gift could be viewed by the boyfriend as a

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?

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

Suppose that an economics professor selects two students, Audrey and Michael, to participate in a classroom experiment. The professor gives Audrey twenty $1 bills. Audrey must pick an allocation of the twenty $1 bills to offer to Michael. If Michael accepts the allocation, each student keeps his or her portion of the money. If Michael rejects the allocation, the professor keeps the $20, and each student receives nothing. Audrey selects $19 for herself and $1 for Michael. Based on the studies of human decision making, which of the following statements is correct?

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

Table 22-18 The following table shows the preferences of four types of voters over four possible alternatives as well as the percentage of the electorate with the given preferences. -Refer to Table 22-18. Suppose before any voting takes place that alternative W is eliminated as an option. If the voters first choose between alternatives X and Y in a majority vote, with the winner of that vote going against option Z in a majority vote, which alternative would win?