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In the context of an ultimatum game, the first player proposes a split of $100 to a second player. The second player can either accept the split or both players receive $0. A rational second player will accept any offer ​


A) ​greater than $0.
B) ​equal to $50.
C) ​greater than $50.
D) ​that she thinks is fair.

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

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The Condorcet voting paradox demonstrates that democratic outcomes do not always obey the property of


A) narrowness of preferences.
B) concavity of preferences.
C) asymmetry of preferences.
D) transitivity of preferences.

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

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Table 22-16 The Johnson family is planning a vacation and, though Mr. and Mrs. Johnson will be paying for the trip, they have decided to use a democratic voting process to choose their destination. The family members' preferences are reflected in the table below. Table 22-16 The Johnson family is planning a vacation and, though Mr. and Mrs. Johnson will be paying for the trip, they have decided to use a democratic voting process to choose their destination. The family members' preferences are reflected in the table below. -Refer to Table 22-16. If Mr. Johnson wants to ensure that his 1st choice becomes the family's winning destination, he should propose A) using a vote by majority rule and first choosing between Opryland and the Grand Canyon, then choosing between the winner of the first vote and Sea World, and finally choosing between the winner of the second vote and Disneyland. B) using a vote by majority rule and first choosing between Disneyland and Sea World, then choosing between the winner of the first vote and the Grand Canyon and finally choosing between the winner of the second vote and the Opryland. C) using a vote by majority rule and first choosing between Sea World and the Grand Canyon, then choosing between the winner of the first vote and Disneyland, and finally choosing between the winner of the second vote and Opryland. D) using a Borda count. -Refer to Table 22-16. If Mr. Johnson wants to ensure that his 1st choice becomes the family's winning destination, he should propose


A) using a vote by majority rule and first choosing between Opryland and the Grand Canyon, then choosing between the winner of the first vote and Sea World, and finally choosing between the winner of the second vote and Disneyland.
B) using a vote by majority rule and first choosing between Disneyland and Sea World, then choosing between the winner of the first vote and the Grand Canyon and finally choosing between the winner of the second vote and the Opryland.
C) using a vote by majority rule and first choosing between Sea World and the Grand Canyon, then choosing between the winner of the first vote and Disneyland, and finally choosing between the winner of the second vote and Opryland.
D) using a Borda count.

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

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Kenneth Arrow proved that the voting system that satisfied all of the properties of his "perfect" voting system was


A) one in which a single person (a "dictator") imposes his preferences on everyone else.
B) pairwise majority voting.
C) majority voting that is not pairwise.
D) None of the above is correct. Arrow proved that no voting system can satisfy all of the properties of his "perfect" system.

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

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Arrow's impossibility theorem shows that it is impossible to find a better voting system than pairwise majority voting.

A) True
B) False

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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. 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 swimming pool using pairwise voting, A) the playground wins by 10%. B) the playground wins by 45%. C) the swimming pool wins by 10%. D) the swimming pool wins by 55%. -Refer to Table 22-4. If the mayor asks the residents to choose between the playground and the swimming pool using pairwise voting,


A) the playground wins by 10%.
B) the playground wins by 45%.
C) the swimming pool wins by 10%.
D) the swimming pool wins by 55%.

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

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When a corporation decides to include its own corporate stock as part of the compensation for its employees, it is trying to solve the


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

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

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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. 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 pairwise majority voting with A versus B, then the winner of that vote versus C, then the winner of that vote versus D, which policy wins? A) A B) B C) C D) D 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 pairwise majority voting with A versus B, then the winner of that vote versus C, then the winner of that vote versus D, which policy wins?


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

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

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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. 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. If the first vote pits France against Greece and the second vote pits Italy against the winner of the first vote, then the outcome is as follows: A) France wins the first vote and Italy wins the second vote, so they go to Italy. B) France wins the first vote and France wins the second vote, so they go to France. C) Greece wins the first vote and Greece wins the second vote, so they go to Greece. D) Greece wins the first vote and Italy wins the second vote, so they go to Italy. -Refer to Table 22-1. If the first vote pits France against Greece and the second vote pits Italy against the winner of the first vote, then the outcome is as follows:


A) France wins the first vote and Italy wins the second vote, so they go to Italy.
B) France wins the first vote and France wins the second vote, so they go to France.
C) Greece wins the first vote and Greece wins the second vote, so they go to Greece.
D) Greece wins the first vote and Italy wins the second vote, so they go to Italy.

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

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Which of the following is not an example of a principal trying to solve the moral-hazard problem? The principal


A) calls the agent's references.
B) installs hidden cameras to monitor the agent's behavior.
C) pays the agent efficiency wages.
D) pays the agent a year-end bonus.

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

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Which of the following is not an example of asymmetric information?


A) When someone is applying for a job, the employer checks references to determine the previous work habits of the applicant.
B) When an employee purchases group life insurance without taking a physical exam, she knows more about her health than does the insurance company.
C) When someone is considering buying a used car from a dealership, the dealer knows more about the true condition of the car than does the potential buyer.
D) All of the above are examples of asymmetric information.

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

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Table 22-13 A high school Spanish class and their teacher are planning to take a Spring Break trip abroad but they have to decide where to go. They have narrowed the options to: Spain, Mexico, Ecuador, and Costa Rica. The voters' preferences are shown in the table below. Table 22-13 A high school Spanish class and their teacher are planning to take a Spring Break trip abroad but they have to decide where to go. They have narrowed the options to: Spain, Mexico, Ecuador, and Costa Rica. The voters' preferences are shown in the table below. -Refer to Table 22-13. In a pairwise election between Costa Rica and Ecuador and then a second election between the winner and Mexico, which countries are chosen? A) Costa Rica is chosen in the in the first and second elections. B) Costa Rica is chosen in the first election and Mexico is chosen in the second. C) Ecuador is chosen in the first and second elections. D) Ecuador is chosen in the first election and Mexico is chosen in the second. -Refer to Table 22-13. In a pairwise election between Costa Rica and Ecuador and then a second election between the winner and Mexico, which countries are chosen?


A) Costa Rica is chosen in the in the first and second elections.
B) Costa Rica is chosen in the first election and Mexico is chosen in the second.
C) Ecuador is chosen in the first and second elections.
D) Ecuador is chosen in the first election and Mexico is chosen in the second.

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

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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) C) and D)
F) None of the above

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Scenario 22-4 ​ 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 22-4. If the vote were conducted according to a Borda count system where each person's first choice receives 4 points, second choice 3 points, third choice 2 points, and fourth choice 1 point, the election winner would be


A) pizza.
B) ravioli.
C) lasagne.
D) spaghetti.

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

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When asymmetric information affects a relationship between two parties, it is always the case that


A) neither party is well informed.
B) one party is better informed than the other party.
C) both parties are equally well informed.
D) the government is better informed than either of the two parties.

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

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The Borda count fails to satisfy which of Kenneth Arrow's properties of a "perfect" voting system?


A) no dictator
B) unanimity
C) transitivity
D) independence of irrelevant alternatives

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

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Table 22-2 Three longtime friends-Allen, Brian, and Cody-are deciding how they will spend their Sunday afternoon. They all agree that they should do one of three things: go to a movie, play golf, or go to a baseball game. They also agree that they will have two pairwise votes to determine how to spend their afternoon, 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. Table 22-2 Three longtime friends-Allen, Brian, and Cody-are deciding how they will spend their Sunday afternoon. They all agree that they should do one of three things: go to a movie, play golf, or go to a baseball game. They also agree that they will have two pairwise votes to determine how to spend their afternoon, 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 22-2. Which of the following statements is correct regarding the Condorcet paradox and the results of pairwise voting by Allen, Brian, and Cody? A) The paradox implies that pairwise voting never produces transitive preferences, and so the voting by Allen, Brian, and Cody fails to produce transitive preferences. B) The paradox implies that pairwise voting sometimes (but not always) produces transitive preferences, and the voting by Allen, Brian, and Cody does produce transitive preferences. C) The paradox implies that pairwise voting sometimes (but not always) fails to produce transitive preferences, and the voting by Allen, Brian, and Cody fails to produce transitive preferences. D) The paradox does not apply to the case at hand, because Brian's preferences are not individually transitive. -Refer to Table 22-2. Which of the following statements is correct regarding the Condorcet paradox and the results of pairwise voting by Allen, Brian, and Cody?


A) The paradox implies that pairwise voting never produces transitive preferences, and so the voting by Allen, Brian, and Cody fails to produce transitive preferences.
B) The paradox implies that pairwise voting sometimes (but not always) produces transitive preferences, and the voting by Allen, Brian, and Cody does produce transitive preferences.
C) The paradox implies that pairwise voting sometimes (but not always) fails to produce transitive preferences, and the voting by Allen, Brian, and Cody fails to produce transitive preferences.
D) The paradox does not apply to the case at hand, because Brian's preferences are not individually transitive.

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

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Table 22-7 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 Table 22-7 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 Table 22-7. If the first vote pits a stoplight against a 4-way stop and the second vote pits a 2-way stop against the winner of the first vote, then the outcome is as follows: A) 4-way stop wins the first vote and 4-way stop wins the second vote, so the town installs a 4-way stop. B) 4-way stop wins the first vote and 2-way stop wins the second vote, so the town installs a 2-way stop. C) Stoplight wins the first vote and stoplight wins the second vote, so the town installs a stoplight. D) Stoplight wins the first vote and 2-way stop wins the second vote, so the town installs a 2-way stop. -Refer to Table 22-7. If the first vote pits a stoplight against a 4-way stop and the second vote pits a 2-way stop against the winner of the first vote, then the outcome is as follows:


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

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

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The field of political economy


A) applies the methods of political science to microeconomics.
B) applies the methods of political science to macroeconomics.
C) is relevant to the issue of how active government should be in economic matters.
D) integrates psychological insights to better understand individual choices.

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

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Students of microeconomic principles often say they are going to study "tonight," because the only way to pass the exam is to study some every night. When "tonight" comes, some students choose to do something else. Come exam day, these students do not do well on their exam. This observation is an example of how people


A) are inconsistent over time.
B) are consistent over time.
C) are mainly interested in fairness.
D) are rational.

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

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