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Scenario 22-3 Three candidates, Frank, Brian, and Wanda, are running for office. There are three voters in the upcoming election: Henry, Diane, and Linda. Henry prefers Brian over Frank and Frank over Wanda. Diane prefers Wanda over Brian and Brian over Frank. Linda prefers Frank over Brian and Brian over Wanda. -Refer to Scenario 22-3.If the voters were given a choice of Frank versus Wanda first,then the winner was in a second election versus Brian,who would win?


A) Frank
B) Brian
C) Wanda
D) There is not enough information to answer this question.

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

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Severe adverse-selection problems may result in


A) too few good used cars being offered for sale.
B) wages that are too low relative to equilibrium levels.
C) too many good drivers buying too much automobile insurance.
D) people with average health buying too much health insurance.

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

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Table 22-6 Table 22-6 -Refer to Table 22-6.The table shows the preferences for 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 of the following statements is true? A) In a vote between B and C, C loses since only the Type 1 voters prefer C to B. B) In a vote between A and B, B wins getting 85% of the total vote. C) In a vote between A and C, C loses getting only 45% of the total vote. D) Both a and b -Refer to Table 22-6.The table shows the preferences for 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 of the following statements is true?


A) In a vote between B and C, C loses since only the Type 1 voters prefer C to B.
B) In a vote between A and B, B wins getting 85% of the total vote.
C) In a vote between A and C, C loses getting only 45% of the total vote.
D) Both a and b

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

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Which of the following would be an example of a principal trying to deal with a moral hazard problem?


A) The parents of an infant secretly place video cameras in their house before the baby-sitter arrives.
B) An insurance company checks police records to determine if its policyholders have received traffic citations.
C) An employer examines his workers' output on a daily basis.
D) All of the above are correct.

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

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Which of the following is not correct?


A) An example of adverse selection is man who tries to sell his used car without disclosing that it needs a new transmission.
B) The "invisible hand" of a free market will always fix the problems of adverse selection and moral hazard.
C) An employer may try to prevent a moral hazard problem by paying her workers an efficiency wage.
D) One interpretation of gift giving is that it reflects asymmetric information and signaling.

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

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Scenario 22-5 Three members of the DiCarlo family, Vinny, Maria, and Franki, are choosing the entree for a large family reunion. Their options are: spaghetti, ravioli, lasagne, and pizza. Vinny prefers spaghetti over lasagne, lasagne over ravioli, and ravioli over pizza. Maria prefers ravioli over spaghetti, spaghetti over pizza, and pizza over lasagne. Frankie prefers pizza over ravioli, ravioli over lasagne, and lasagne over spaghetti. -Refer to Scenario 22-5.If,before any votes were cast,ravioli was eliminated from the choices and the vote were conducted according to a Borda count system where each person's first choice receives 3 points,second choice 2 points,and third choice 1 point,the election winner would be


A) pizza.
B) spaghetti
C) lasagne.
D) The result would be a three-way tie between pizza, spaghetti and lasagne.

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

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A college professor hires a student to babysit her children and pays the student an efficiency-wage.Which of the following is correct about the wage the student earns?


A) The wage is higher than the wage the student could earn working a similar job elsewhere.
B) The wage is the same as the wage the student could earn working a similar job elsewhere.
C) The wage is lower than the wage the student could earn working a similar job elsewhere.
D) The wage is likely to result in the student shirking responsibilities.

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

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

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The Condorcet paradox applies directly t...

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Most economic models


A) incorporate the assumption of rational behavior on the part of economic actors.
B) incorporate the notion that people are usually reluctant to change their minds.
C) are meant to precisely duplicate reality.
D) assume that people often make sub-optimal choices.

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

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Table 22-9 Table 22-9 -Refer to Table 22-9.The table shows the preferences of 100 voters over three possible outcomes: A,B,and C.Which of the following statements is true? A) In pairwise majority voting, B is preferred to A, A is preferred to C, and B is preferred to C. B) In pairwise majority voting, C is preferred to B, B is preferred to A, and C is preferred to A. C) In pairwise majority voting, B is preferred to A, A is preferred to C, and C is preferred to B. D) In pairwise majority voting, A is preferred to C, C is preferred to B, and A is preferred to B. -Refer to Table 22-9.The table shows the preferences of 100 voters over three possible outcomes: A,B,and C.Which of the following statements is true?


A) In pairwise majority voting, B is preferred to A, A is preferred to C, and B is preferred to C.
B) In pairwise majority voting, C is preferred to B, B is preferred to A, and C is preferred to A.
C) In pairwise majority voting, B is preferred to A, A is preferred to C, and C is preferred to B.
D) In pairwise majority voting, A is preferred to C, C is preferred to B, and A is preferred to B.

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

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A community has five voters who are interested in only one issue: the government's spending on local parks.If Andre would like the government to spend $12,000 on parks,Brandon prefers $7,000,Charlene prefers $4,000,Dennis prefers $2,000,and Ernie prefers $0,how much spending would a politician seeking to win the election select when running against one opponent?


A) $2,000
B) $4,000
C) $7,000
D) $12,000

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

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Table 22-15 The town of Portsmouth is considering a renovation to the high school. The voters in Portsmouth have different preferences on the budget for the renovation as displayed below. Table 22-15 The town of Portsmouth is considering a renovation to the high school. The voters in Portsmouth have different preferences on the budget for the renovation as displayed below. -Refer to Table 22-15.If there is a vote between a budget of $8 million and $12 million,the median voter will vote to spend A) $8 million and the voting outcome will be $8 million. B) $8 million and the voting outcome will be $12 million. C) $12 million and the voting outcome will be $8 million.. D) $12 million and the voting outcome will be $12 million. -Refer to Table 22-15.If there is a vote between a budget of $8 million and $12 million,the median voter will vote to spend


A) $8 million and the voting outcome will be $8 million.
B) $8 million and the voting outcome will be $12 million.
C) $12 million and the voting outcome will be $8 million..
D) $12 million and the voting outcome will be $12 million.

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

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Which of the following events best exemplifies the concept of signaling?


A) A college student's parents, having learned that their child is short of money, send her a check for $1,000.
B) A woman, who is trying to win the love of a certain man, buys him a very personal gift.
C) A grocery store maintains a policy of examining the driver's license of everyone who writes a personal check to purchase his groceries.
D) A university maintains a policy of considering for admission only those students who graduated among the top ten percent of their high school class.

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

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When markets fail,which of the following is true?


A) Government intervention can always improve outcomes.
B) Government intervention can potentially improve outcomes.
C) Government intervention can never improve outcomes.
D) Markets do not fail.

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

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

A) True
B) False

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Kevin borrowed some money from Hi Interest Bank,telling the loan officer that he intended to use the money to make repairs to his home.After getting the loan,Kevin and his girlfriend immediately took the money and headed to the nearest riverboat casino for a weekend of gambling and entertainment.


A) This is an example of adverse selection since banks have difficulty selecting their customers.
B) This is a typical example of the Condorcet Paradox.
C) From the given information, Kevin is the principal and his girlfriend is the agent.
D) From the given information, Hi Interest Bank is the principal and Kevin is the agent.

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

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Scenario 22-3 Three candidates, Frank, Brian, and Wanda, are running for office. There are three voters in the upcoming election: Henry, Diane, and Linda. Henry prefers Brian over Frank and Frank over Wanda. Diane prefers Wanda over Brian and Brian over Frank. Linda prefers Frank over Brian and Brian over Wanda. -Refer to Scenario 22-3.If the vote were conducted according to a Borda count system where each person's first choice receives 3 points,second choice 2 points,and third choice 1 point,the election winner would be


A) Frank.
B) Brian.
C) Wanda.
D) a tie between Frank and Wanda.

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

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Table 22-13 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. Table 22-13 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 22-13.If the mayor asks the residents to choose between the library and the swimming pool using pairwise voting, A) the library wins by 30%. B) the library wins by 65%. C) the swimming pool wins by 10%. D) the swimming pool wins by 35%. -Refer to Table 22-13.If the mayor asks the residents to choose between the library and the swimming pool using pairwise voting,


A) the library wins by 30%.
B) the library wins by 65%.
C) the swimming pool wins by 10%.
D) the swimming pool wins by 35%.

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

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A life insurance company requires new applicants to have a medical exam prior to writing the insurance policy.This requirement is an example of


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

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

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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 community center, and (2) the second vote pits ice rink 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 ice rink wins the second vote, so they build an ice rink. C) Community center wins the first vote and community center wins the second vote, so they build a community center. D) Community center wins the first vote and ice rink wins the second vote, so they build an ice rink. -Refer to Table 22-3.If (1) the first vote pits "library" against "community center," and (2) the second vote pits "ice rink" 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 "ice rink" wins the second vote, so they build an ice rink.
C) "Community center" wins the first vote and "community center" wins the second vote, so they build a community center.
D) "Community center" wins the first vote and "ice rink" wins the second vote, so they build an ice rink.

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

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