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Exam 22: Frontiers of Microeconomics

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Question 1

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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) the principal could better monitor the agent
B) the principal could pay the agent above-equilibrium wages
C) the principal could delay payment to the agent
D) the principal could pay the agent below-equilibrium wages

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

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Question 2

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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?

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The median voter theorem implies that po...

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Question 3

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How have insights from the field of psychology influenced the thinking of economists in recent years?

Screening is an action taken by an uninformed party to induce an informed party to reveal information.

Economist Kenneth Arrow wrote a famous book in 1951 in which he took up the question,

Table 22-3 The citizens of Anytown will decide whether to build a new library, a new community center, or a new ice rink. Exactly one of the three choices will prevail, and the choice will be made by way of pairwise voting, with the majority determining the outcome on each vote. The preferences of the voters are summarized in the table below. $\begin{array}{c}\mathbf { Voter~ Type }\\\begin{array} { | l | c | c | c | } \hline & \mathbf { Type 1 } & \mathbf { Type 2 } & \mathbf { Type } 3 \\\hline \mathbf { Percent ~of ~Electorate } & 25 & 35 & 40 \\\hline \mathbf { First ~choice } & \text { Library } & \text { Community Center } & \text { Ice Rink } \\\hline \mathbf { Second ~choice } & \text { Community Center } & \text { Ice Rink } & \text { Library } \\\hline \mathbf { Third~ choice } & \text { Ice Rink } & \text { Library } & \text { Community Center } \\\hline\end{array}\end{array}$ -Refer to Table 22-3.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

The field of political economy

Valerie prefers A to B and she prefers B to C.If Valerie's preferences are transitive,then she prefers A to C.

Table 22-1 $\begin{array} { | l | c | c | c | } \hline & \mathbf { Tricia } & \mathbf { Sarah } & \mathbf { Katie } \\\hline \mathbf { First~ choice } & \text { Irel and } & \text { Italy } & \text { Greece } \\\hline \mathbf { Second ~choice } & \text { Italy } & \text { Greece } & \text { Ireland } \\\hline \mathbf { Third ~choice } & \text { Greece } & \text { Ireland } & \text { Italy } \\\hline\end{array}$ -Refer to Table 22-1.If the first vote pits Ireland against Italy and the second vote pits Greece against the winner of the first vote,then the outcome is as follows:

Which of the following statements is correct?

Explain the Condorcet paradox.To which type of voting system does it apply?

The Condorcet paradox

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

The results of the ultimatum game illustrate the fact that

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

One property of Kenneth Arrow's "perfect" voting system is that the ranking between any two outcomes A and B should not depend on whether some third outcome C is also available.Arrow called this property

The field of behavioral economics applies the methods of economics to study how government works.

An implication of the median voter theorem is that

A firm with a very good product

Table 22-3 The citizens of Anytown will decide whether to build a new library, a new community center, or a new ice rink. Exactly one of the three choices will prevail, and the choice will be made by way of pairwise voting, with the majority determining the outcome on each vote. The preferences of the voters are summarized in the table below. $\begin{array}{c}\mathbf { Voter~ Type }\\\begin{array} { | l | c | c | c | } \hline & \mathbf { Type 1 } & \mathbf { Type 2 } & \mathbf { Type } 3 \\\hline \mathbf { Percent ~of ~Electorate } & 25 & 35 & 40 \\\hline \mathbf { First ~choice } & \text { Library } & \text { Community Center } & \text { Ice Rink } \\\hline \mathbf { Second ~choice } & \text { Community Center } & \text { Ice Rink } & \text { Library } \\\hline \mathbf { Third~ choice } & \text { Ice Rink } & \text { Library } & \text { Community Center } \\\hline\end{array}\end{array}$ -Refer to Table 22-3.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: