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Exam 22: Frontiers in Microeconomics

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Question 71

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An airline knows that business travelers have more inelastic demand for travel than vacationers. That is, business travelers are often willing to pay more for airline tickets than vacationers. The airline also knows that business travelers do not like to travel over weekends. When customers request airline tickets that do not involve travel over a weekend, the airline determines that a traveler is likely a business traveler and charges a higher price. This is an example of

A) moral hazard.
B) signaling.
C) screening.
D) adverse selection.

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

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Question 72

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Scenario 22-6 ​ Shana owns a boutique that sells high-end 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. What is the term for the type of wage Shana pays Katie?

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Question 73

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What insight into human behavior do economist learn from observing people playing the ultimatum game?

Experiments show that when real people play the ultimatum game, starting with $100,

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. -Refer to Table 22-24. Explain why the Condorcet paradox applies to this voting situation.

The Condorcet paradox demonstrates that the result of a majority vote may be affected by

Table 22-4 The fortunate residents of Anytown have a budget surplus. The mayor decided that it is only fair to have the residents vote on what to do with the surplus. The mayor has narrowed the options down to three possible projects: a playground, a library, or a swimming pool. The voters fall into three categories and have preferences as illustrated in the table. -Refer to Table 22-4. If the mayor asks the residents to choose between the library and the swimming pool using pairwise voting,

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.

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 diseased trees. Based on the preferences in the table, which of the following statements is correct?

Behavioral economics

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. Based on this information, the median voter's first choice is

Table 22-15 Diane, Henry, and Linda are voting for who to promote. They can only promote one candidate. Their preferences are given in the table below. -Refer to Table 22-15. Which of the following statements is correct regarding the Condorcet paradox and the results of pairwise voting by Henry, Diane, and Linda?

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

Table 22-4 The fortunate residents of Anytown have a budget surplus. The mayor decided that it is only fair to have the residents vote on what to do with the surplus. The mayor has narrowed the options down to three possible projects: a playground, a library, or a swimming pool. The voters fall into three categories and have preferences as illustrated in the table. -Refer to Table 22-4. If the mayor asks the residents to choose between the playground and the library using pairwise voting,

A safe driver would likely choose an auto insurance policy with a

Table 22-20 The table below shows the preferred city budget (in millions) for in the city of Springfield. -Refer to Table 22-20. 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?

When the buyer knows less than the seller about the characteristics of the good being sold, there is

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. -Refer to Table 22-5. Which of the following statements is correct?

An implication of the median voter theorem is that, in a race between Republicans and Democrats,

Moral hazard occurs when