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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. 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. -Refer to Table 22-3.If (1) the first vote pits library against ice rink, and (2) the second vote pits community center against the winner of the first vote,then the outcome is as follows: A) Library wins the first vote and library wins the second vote, so they build a library. B) Library wins the first vote and community center wins the second vote, so they build a community center. C) Ice rink wins the first vote and ice rink wins the second vote, so they build an ice rink. D) Ice rink wins the first vote and community center wins the second vote, so they build a community center. -Refer to Table 22-3.If (1) the first vote pits "library" against "ice rink," and (2) the second vote pits "community center" against the winner of the first vote,then the outcome is as follows:


A) "Library" wins the first vote and "library" wins the second vote, so they build a library.
B) "Library" wins the first vote and "community center" wins the second vote, so they build a community center.
C) "Ice rink" wins the first vote and "ice rink" wins the second vote, so they build an ice rink.
D) "Ice rink" wins the first vote and "community center" wins the second vote, so they build a community center.

E) None of the above
F) All of the above

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Which of the following sets of preferences satisfies the property of transitivity?


A) Cookies are preferred to brownies. Brownies are preferred to ice cream. Ice cream is preferred to cookies.
B) Cookies are preferred to pie. Brownies are preferred to pie. Pie is preferred to cookies.
C) Cookies are preferred to ice cream. Ice cream is preferred to brownies. Cookies are preferred to brownies.
D) Cookies are preferred to pie. Ice cream is preferred to cookies. Pie is preferred to ice cream.

E) A) and B)
F) B) and C)

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Government action in cases of asymmetric information may not be an ideal solution because


A) the private market can sometimes deal with information asymmetries on its own.
B) the government tends to have more information than private parties.
C) both (a) and (b) .
D) None of the above is correct.

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

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

A) True
B) False

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When homeowners sell a house,part of the paperwork they complete is a statement of disclosure on which the homeowners are supposed to reveal everything that they know is wrong with the house.The purpose of the statement of disclosure is to try to solve the


A) principal-agent problem.
B) moral-hazard problem.
C) adverse-selection problem.
D) signaling problem.

E) C) and D)
F) B) and C)

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An example of asymmetric information is when a seller of a house knows more than the buyer about the house's condition.

A) True
B) False

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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


A) both moral hazard and adverse selection.
B) neither moral hazard nor adverse selection.
C) moral hazard, but not adverse selection.
D) adverse selection, but not moral hazard.

E) All of the above
F) None of the above

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Some of the systematic mistakes that people make include


A) being overconfident.
B) placing too much weight on events that are more vivid compared to those with greater statistical probability.
C) being generally unwilling to change their minds.
D) All of the above are correct.

E) C) and D)
F) A) and C)

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Table 22-6 Table 22-6 -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? A) As the Condorcet Paradox predicts, majority rule fails to produce transitive preferences for society. B) As Arrow's Impossibility Theorem demonstrates, it is impossible from this information to determine which outcome the voters prefer. C) The median voter theorem allows us to conclude that in a vote between B and C, B will win since the Type 2 voter is the median voter. D) While the Condorcet Paradox predicts that majority rule may not produce transitive preferences for society as a whole, society's preferences in this case are transitive. -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?


A) As the Condorcet Paradox predicts, majority rule fails to produce transitive preferences for society.
B) As Arrow's Impossibility Theorem demonstrates, it is impossible from this information to determine which outcome the voters prefer.
C) The median voter theorem allows us to conclude that in a vote between B and C, B will win since the Type 2 voter is the median voter.
D) While the Condorcet Paradox predicts that majority rule may not produce transitive preferences for society as a whole, society's preferences in this case are transitive.

E) A) and D)
F) A) and C)

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Table 22-10 Three family members -- Seamus, Maeve, and Siobhan -- are deciding what type of movie to attend. The three choices are an action adventure, comedy, or horror. The first, second, and third choices for each person are as indicated in the table below. Table 22-10 Three family members -- Seamus, Maeve, and Siobhan -- are deciding what type of movie to attend. The three choices are an action adventure, comedy, or horror. The first, second, and third choices for each person are as indicated in the table below. -Refer to Table 22-10.Suppose the three decide to make the decision based on pairwise majority voting.If they first choose between Action and Comedy and then choose between the winner of the first vote and Horror,which movie alternative will win? A) Action B) Comedy C) Horror D) There is no clear winner - Comedy and Horror will tie. -Refer to Table 22-10.Suppose the three decide to make the decision based on pairwise majority voting.If they first choose between Action and Comedy and then choose between the winner of the first vote and Horror,which movie alternative will win?


A) Action
B) Comedy
C) Horror
D) There is no clear winner - Comedy and Horror will tie.

E) None of the above
F) A) and D)

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In his 1951 book,Social Choice and Individual Values,Kenneth Arrow defined a "perfect" voting system.That system includes which of the following features?


A) unanimity
B) transitivity
C) absence of a dictator
D) All of the above are correct.

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

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If you are assigned the role of Player A in the Ultimatum game and you propose that player B gets $1 and you get $99


A) you are behaving as a rational wealth-maximizer and player B is likely to accept your offer.
B) you are behaving as a rational wealth-maximizer and player B is likely to reject your offer.
C) you are not behaving as a rational wealth-maximizer and player B is likely to accept your offer.
D) you are not behaving as a rational wealth-maximizer and player B is likely to reject your offer.

E) C) and D)
F) B) and D)

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Which of the following practices would indicate that an employer is trying to overcome a moral-hazard problem with his employees?


A) The employer pays his workers wages that are unusually high for the industry and region.
B) The employer has voluntarily removed video cameras from the factory floor.
C) The employer has discontinued the practice of giving his employees' year-end bonuses.
D) Both A and B are correct.

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

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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 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 -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) 2-way stop wins the first vote and 2-way stop wins the second vote, so the town installs a 2-way stop. B) 2-way stop wins the first vote and stoplight wins the second vote, so the town installs a stoplight. C) 4-way stop wins the first vote and 4-way stop wins the second vote, so the town installs a 4-way stop. D) 4-way stop wins the first vote and stoplight wins the second vote, so the town installs a stoplight. -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) 2-way stop wins the first vote and 2-way stop wins the second vote, so the town installs a 2-way stop.
B) 2-way stop wins the first vote and stoplight wins the second vote, so the town installs a stoplight.
C) 4-way stop wins the first vote and 4-way stop wins the second vote, so the town installs a 4-way stop.
D) 4-way stop wins the first vote and stoplight wins the second vote, so the town installs a stoplight.

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

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Studies of human decision-making have detected systematic mistakes that people make.Which of the following have been detected?


A) people are overconfident
B) people give too much weight to a small number of vivid observations
C) people are reluctant to change their minds
D) All of the above are correct.

E) A) and C)
F) A) and B)

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Economists use basic psychological insights in the field of study called


A) psychological economics.
B) transitional economics.
C) behavioral economics.
D) social economics.

E) A) and B)
F) C) and D)

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


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

E) None of the above
F) All of the above

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Suppose that residents of a town are asked to vote on the best day to improve the safety of an intersection.The three choices are: a stoplight,a 4-way stop,and a 2-way stop.The mayor asks the residents to assign 3 points to their first choice,2 points to their second choice,and 1 point to their last choice.The intersection will be controlled by the method that receives the most points.This voting scheme is called


A) Arrow's impossibility theorem.
B) the Condorcet paradox.
C) a Borda count.
D) the median voter theorem.

E) B) and C)
F) A) and D)

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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) Neither (1) nor (2) serves as an example of asymmetric information.
B) Both (1) and (2) serve as examples of asymmetric information.
C) Neither (1) nor (2) serves as an example of a hidden action.
D) Both (1) and (2) serve as examples of hidden action.

E) A) and C)
F) C) and D)

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The field of behavioral economics builds a more subtle and complex model of economic behavior using insights from


A) physics.
B) biology.
C) psychology.
D) anthropology.

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

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