Question 1

Which of the following statements is not correct?
A)The median voter theorem explains why politicians appeal to the middle of the voting distribution.
B)Based on studies of human decision making, most people prefer to procrastinate, both in the immediate future and in the distant future.
C)Screening refers to an uninformed party trying to extract information from an informed party.
D)Advertising can be an example of a company signaling the quality of its products.

Accepted Answer

This statement is not correct based on studies of human decision making. In fact, studies have found that people generally prefer to avoid procrastination and complete tasks in a timely manner.

Question 2

​Economists have found that entrepreneurs are likely to have subjective beliefs about the probability of entrepreneurial success that are higher than the actual objective probabilities. These beliefs are most closely related to which of the following behavior concepts?
A)​People are overconfident.
B)​People give too much weight to a small number of vivid observations.
C)​People are reluctant to change their minds.
D)​People are inconsistent over time.

Accepted Answer

This question is asking about the discrepancy between subjective beliefs and objective probabilities, which can be attributed to overconfidence. Option B is related to the availability heuristic, option C to confirmation bias, and option D to temporal inconsistency.

Question 3

Recent developments in political economy
A)render much of the traditional field of political science obsolete.
B)render much of the traditional field of economics obsolete.
C)illustrate the resolute nature of democracy.
D)point to the fact that government is a less-than-perfect institution.

Accepted Answer

Recent developments in political economy, such as the rise of populism and the growing concerns over income inequality and climate change, have highlighted the limitations and imperfections of government as an institution. This does not render the entire field of political science or economics obsolete, but rather points to the need for continued study and analysis of these issues.

Question 4

In a dictator game, player A must divide $100 between player A and player B. In this game, player B does not have the opportunity to reject an offer - he or she goes home with whatever player A offers. Experiments have observed that when player A splits the $100, he or she consistently offers over $10 to player B. Which of the following comments fits best.
A)Although player A is acting as economic theory usually assumes, he or she makes such offers because they seem more fair.
B)Although player A is acting as economic theory usually assumes, he or she makes such offers although they are not fair.
C)Although player A is not acting as economic theory usually assumes, he or she makes such offers because they seem more fair.
D)Although player A is not acting as economic theory usually assumes, he or she makes such offers because they are not fair.

Accepted Answer

Economic theory usually assumes that individuals act only on self-interest and would offer the minimum amount possible in a dictator game. However, in reality, individuals may consider fairness and equity when making offers. Therefore, player A not following the assumed economic theory does not necessarily mean that the offers are unfair. The fact that player A consistently offers over $10 shows that they may be considering fairness as well. Choice A suggests that player A is only doing it to appear fair, which is not necessarily true. Choice B suggests that player A is consciously making unfair offers, which is also not necessarily true. Choice D is incorrect as it contradicts the observation that player A consistently offers over $10.

Question 5

In Homer's Odyssey, Odysseus instructs his crew members to tie him to the mast of the ship so that he is not later tempted by the Siren's song. Which of the following irrational behaviors was he trying to avoid?
A)​People are overconfident.
B)​People behave in a time inconsistent manner.
C)​People give too much weight to a small number of vivid observations.
D)​People are reluctant to change their minds.

Accepted Answer

Odysseus was trying to avoid behaving in a time inconsistent manner by having his crew tie him to the mast of the ship, as he knew he would be tempted by the Siren's song and would make an irrational decision to steer the ship towards them if he was not restrained.

Question 6

Which of the following statements is correct?
A)Based on studies of human decision making, most people are overconfident in their own abilities.
B)Arrow's impossibility theorem disproves the median voter theorem.
C)Romantic gifts are an example of adverse selection.
D)An efficiency wage encourages workers to shirk.

Accepted Answer

Studies have shown that individuals tend to be overconfident in their abilities and the accuracy of their beliefs, leading to biased decision making.

Question 7

The field of political economy
A)casts aside most of the standard methods of economic analysis.
B)is also referred to as the field of public choice.
C)is also referred to as the field of macroeconomics.
D)produces the conclusion that democratic principles rarely lead to desirable economic outcomes.

Accepted Answer

Political economy is often referred to as the field of public choice, which focuses on how government policies and actions impact the economy. Option A is incorrect because political economy utilizes many standard economic methods and theories. Option C is incorrect because macroeconomics is a distinct field within economics that focuses on the aggregate behavior of the economy as a whole. Option D is incorrect because political economy does not necessarily produce this conclusion - there are many different perspectives and debates within the field.

Question 8

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.

Accepted Answer

A rational second player will accept any offer greater than $0 because receiving some money is better than receiving nothing.

Question 9

Which of the following statements is not correct?
A)Based on studies of human decision making, most people value fairness.
B)Based on studies of human decision making, some people's preference are inconsistent over time.
C)Government intervention is the best remedy for the problems caused by asymmetric information.
D)Advertising can be an example of a company signaling the quality of its products.

Accepted Answer

While government intervention can sometimes help reduce the negative effects of asymmetric information, it is not always the best remedy. Other solutions could include increased transparency or competition in the market.

Question 10

The field of political economy applies the methods of
A)psychology to study how the economy works.
B)political science to study how the economy works
C)economics to study how government works.
D)psychology to study how government works.

Accepted Answer

The answer of The field of political economy applies the...

Question 11

If individuals behave irrationally in some circumstances, why do economists typically assume that they behave rationally?​
A)​The assumption of rationality allows economists to make powerful statements that apply the majority of the time.
B)​The assumption of rationality was used before psychologists discovered ways in which individuals behave irrationally.
C)​The assumption of rationality is used because economists do not understand principles of psychology.
D)​The assumption of rationality has yet to be refuted with scientific evidence.

Accepted Answer

The assumption of rationality allows economists to make powerful statements that apply the majority of the time. While individuals may behave irrationally in some circumstances, assuming rationality allows economists to make predictions and models that are generally accurate and useful.

Question 12

If preferences exhibit the property of transitivity, then
A)the preferences are irrational.
B)individuals prefer more government involvement in private markets than do people whose preferences are not transitive.
C)preferences change over time more quickly than when preferences are not transitive.
D)preferences satisfy one of the properties assumed to be desirable by Kenneth Arrow in Social Choice and Individual Values.

Accepted Answer

If preferences exhibit the property of transitivity, it means that if A is preferred to B and B is preferred to C, then A is also preferred to C. This satisfies one of the properties assumed to be desirable by Kenneth Arrow in Social Choice and Individual Values, namely the transitivity of social preferences. Therefore, option D is the correct answer.

Question 13

​Which of the following is best explained with behavioral economics rather than traditional economics?
A)​How people purchase apples from a grocery store.
B)​How people make tradeoffs between labor and leisure
C)​How firms choose prices to maximize profits
D)​How people tend to be overconfident in certain situations

Accepted Answer

Behavioral economics focuses on the psychological and emotional factors that influence decision making, such as overconfidence, whereas traditional economics focuses on rational decision making based on price and utility.

Question 14

Mankiw argues that a primary difference between taxing products like gasoline and taxing soda and other sugary drinks is that
A)consumption of gasoline causes negative externalities on society while consumption of soda affects the consumer.
B)the government can generate significant revenue from the gas tax but not from a soda tax.
C)gasoline has inelastic demand but soda has elastic demand.
D)Both a and c are correct.

Accepted Answer

Mankiw argues that while consumption of gasoline causes negative externalities on society (such as air pollution and climate change), consumption of soda primarily affects the consumer's health. As a result, the rationale for taxation is different in each case. A tax on gasoline can be justified as a way to internalize the external costs of consumption, whereas a tax on soda is often justified as a way to discourage unhealthy behavior and raise revenue.

Question 15

Normally, we expect voters' preferences to exhibit a property called
A)transitivity.
B)transversality.
C)normality.
D)universality.

Accepted Answer

Transitivity means that if a voter prefers option A to option B and option B to option C, then they must also prefer option A to option C. This is a fundamental principle of rational decision-making and is expected of voters' preferences. Transversality, normality, and universality are not relevant principles for voters' preferences.

Question 16

Which of the following would violate transitivity?
A)Vanessa likes A more than B, C more than B, and C more than A.
B)Jay likes C more than B, A more than B, B more than D, and C more than D.
C)Maddy likes C more than A, B more than D, A more than B, and D more than C.
D)Victoria likes C more than B, C more than D, and B more than D.

Accepted Answer

In choice C, Maddy likes C more than A, A more than B, and B more than D. However, she likes D more than C, which violates transitivity. The other choices do not have any violations of transitivity.

Question 17

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.

Accepted Answer

The field of political economy is concerned with the intersection of economics and politics, specifically the role of government in the economy. Therefore, it is most relevant to the issue of how active government should be in economic matters. While it may incorporate elements of microeconomics and macroeconomics, it is not limited to these areas. It may also draw on insights from psychology, sociology, and other social sciences, but its primary focus is on the relationship between economics and politics.

Question 18

Advocates of a tax on soda and other sugary drinks argue that such a tax
A)may encourage better nutrition.
B)will protect our future selves from the long run negative effects of consuming these drinks.
C)is needed because people tend to behave inconsistently over time.
D)All of the above are correct.

Accepted Answer

All of the given options are correct. A tax on soda and other sugary drinks has the potential to encourage better nutrition as it makes these drinks more expensive, leading people to look for healthier alternatives. This tax can also protect the future selves of individuals as the consumption of sugary drinks over a prolonged period can have harmful effects on health. The tax is needed because people tend to behave inconsistently over time, and such a tax can nudge people towards making healthier choices.

Question 19

Which of the following statements captures the meaning of transitivity of preferences?
A)If A is preferred to B, then B is less preferred than A.
B)If A is preferred to B, and B is preferred to C, then A is preferred to C.
C)If A is preferred to B and B is preferred to C, then the preference for A over B is stronger than the preference for B over C.
D)If A is preferred to C, then there exists B such that A is preferred to B and C is preferred to A.

Accepted Answer

Transitivity means that if A is preferred to B, and B is preferred to C, then we can conclude that A is preferred to C. This is captured in statement B. Options A and C only address one aspect of preferences (which option is preferred), but do not capture the idea of transitivity. Option D is incorrect because it states that if A is preferred to C, then there exists a contradictory preference in which C is preferred to A, which is not consistent with the assumption of transitivity.

Question 20

Which of the following sets of preferences satisfies the property of transitivity?
A)Cookies are preferred to pie. Pie is preferred to brownies. Cookies are preferred to brownies.
B)Cookies are preferred to pie. Brownies are preferred to pie. Pie is preferred to cookies.
C)Cookies are preferred to ice cream. Ice cream is preferred to brownies. Brownies are preferred to cookies.
D)Cookies are preferred to pie. Ice cream is preferred to cookies. Pie is preferred to ice cream.

Accepted Answer

This set satisfies transitivity as it follows the logic of "if A is preferred to B and B is preferred to C, then A is also preferred to C." Here, cookies are preferred to pie (A>B), pie is preferred to brownies (B>C), and therefore cookies are preferred to brownies (A>C).

Quiz 22: Frontiers in Microeconomics

Which of the following statements is not correct?

​Economists have found that entrepreneurs are likely to have subjective beliefs about the probability of entrepreneurial success that are higher than the actual objective probabilities. These beliefs are most closely related to which of the following behavior concepts?

Recent developments in political economy

In Homer's Odyssey, Odysseus instructs his crew members to tie him to the mast of the ship so that he is not later tempted by the Siren's song. Which of the following irrational behaviors was he trying to avoid?

Which of the following statements is correct?

The field of political economy

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 ​

Which of the following statements is not correct?

The field of political economy applies the methods of

If individuals behave irrationally in some circumstances, why do economists typically assume that they behave rationally?​

If preferences exhibit the property of transitivity, then

​Which of the following is best explained with behavioral economics rather than traditional economics?

Mankiw argues that a primary difference between taxing products like gasoline and taxing soda and other sugary drinks is that

Normally, we expect voters' preferences to exhibit a property called

Which of the following would violate transitivity?

The field of political economy

Advocates of a tax on soda and other sugary drinks argue that such a tax

Which of the following statements captures the meaning of transitivity of preferences?

Which of the following sets of preferences satisfies the property of transitivity?

Economists have found that entrepreneurs are likely to have subjective beliefs about the probability of entrepreneurial success that are higher than the actual objective probabilities. These beliefs are most closely related to which of the following behavior concepts?

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

If individuals behave irrationally in some circumstances, why do economists typically assume that they behave rationally?

Which of the following is best explained with behavioral economics rather than traditional economics?