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Frontiers of Microeconomics 5563
29. The Condorcet paradox tells us that, even though it is impossible to satisfy all of Arrow’s
properties of a desirable voting system, pairwise majority voting will always satisfy transitivity.
a. True
b. False
30. Borda count is a voting method often used in polls that rank sports teams.
a. True
b. False
31. Arrow’s impossibility theorem demonstrates the impossibility of the median voter theorem.
a. True
b. False
5564 Frontiers of Microeconomics
32. Arrow's impossibility theorem shows that it is impossible to find a better voting system than
pairwise majority voting.
a. True
b. False
33. Arrow’s impossibility theorem illustrates the difficulties in creating the perfect voting system.
a. True
b. False
34. Arrow’s impossibility theorem states that the majority rule fails to produce transitive preferences
for society.
a. True
b. False
Frontiers of Microeconomics 5565
35. The unanimity property states that the ranking between any two outcomes should not depend on
whether some third outcome is available.
a. True
b. False
36. Majority rule will produce the outcome most preferred by the median voter.
a. True
b. False
37. According to the median voter theorem, majority rule will produce an outcome that is inconsistent
with transitive preferences.
a. True
b. False
5566 Frontiers of Microeconomics
38. 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
39. Political leaders are always aiming for an optimal combination of efficiency and equality.
a. True
b. False
40. In the field of study called political economy, economists make use of insights from the field of
psychology.
a. True
b. False
Frontiers of Microeconomics 5567
41. The field of behavioral economics applies the methods of economics to study how government
works.
a. True
b. False
42. A "satisficer" is a person whose decision making is the same as that predicted by mainstream
economic models.
a. True
b. False
43. Researchers have found that the systematic mistakes that people make in their decision making
include a lack of confidence in their own abilities.
a. True
b. False
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44. Most economic models incorporate the assumption of rational behavior on the part of economic
actors.
a. True
b. False
45. Studies of human decision-making have found that people do not give enough weight to a small
number of vivid observations.
a. True
b. False
46. Studies of human decision making have found that people are reluctant to change their minds.
a. True
b. False
Frontiers of Microeconomics 5569
47. Evidence from experiments in which real people play the ultimatum game supports the idea that
people care about fairness as well as about maximization of their personal wealth.
a. True
b. False
48. Based on studies of human decision making, many people care more about the fairness of a game
than about their personal winnings.
a. True
b. False
49. The tendency of many people to procrastinate supports the view that people are consistent over
time.
a. True
b. False
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50. Economic experiments show that people care more about winning a game than about its intrinsic
fairness.
a. True
b. False
51. A person’s tendency to smoke a cigarette after promising himself that he will quit is an example
of the behavioral economics insight that people are inconsistent over time
a. True
b. False
52. Explain what is meant by "asymmetric information." Identify and explain the two basic types of
problems that arise when there is asymmetric information.
Frontiers of Microeconomics 5571
53. 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.
54. Explain the Condorcet paradox. To which type of voting system does it apply?
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55. 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?
56. How have insights from the field of psychology influenced the thinking of economists in recent
years?
Frontiers of Microeconomics 5573
Problems
1. When some people are better informed than others and the imbalance affects the choices they
make, economists say there is
2. The field of economics in which the tools of economics are used to understand the functioning of
government is
3. The field of economics that combines the study the psychology of human behavior and economic
issues is
5574 Frontiers of Microeconomics
4. The problem that results from an agent, who is imperfectly monitored by the principal, engaging in
dishonest or otherwise undesirable behavior is called
5. The problem that arises in markets in which the seller knows more about the characteristics of the
good being sold than the buyer knows is
6. People with hidden health problems are more likely to buy health insurance than other people. As a
result, people in average health may observe the high prices of insurance and decide not to buy it.
This is an example of
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7. Pete owns a small store. He has noticed that when he is not at the store monitoring his employees,
his revenue goes down. What are two changes Pete could make to wages he pays his employees
to correct this problem?
8. Maria and Jose installed a “nannycamera” in their home so that they can view how the nanny is
interacting with their children while they are at work. What type of problem are they trying to
combat?
9. Brandon is considering buying a used car but he first downloads a report from the internet that
shows the history of accidents and major repairs conducted on the car. This action is called
5576 Frontiers of Microeconomics
10. An action taken by an informed party to reveal private information to an uninformed party is
called
11. A travel agency offers a money-back guarantee for vacationers taking their first cruise in case
they do not enjoy the experience. This guarantee is an example of
Scenario 22-5
A wireless telephone service provider offers three service plans to its consumers.
Peak Minutes
Messaging
Data Usage
Monthly Fee
Plan A
450
200
2GB/month
$69.99
Plan B
900
1000
5GB/month
$119.99
Plan C
Unlimited
Unlimited
Unlimited
$149.99
12. Refer to Scenario 22-5. By offering consumers these choices and allowing them to select the
plan that best meets their needs, the wireless service provider is engaging in
