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1) Which of the following help explain why firms pay bonuses to workers during particularly profitable years to prevent workers from becoming disgruntled ? a. people are rational maximizers b. People are reluctant to change their minds c. People are inconsistent over time d. People care about fairness
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2) Which of the following is not true about how people make decisions ? a. people give too much weight to a small number of vivid observations b. People are sometimes too sure of their own abilities c. All of these answers are actually true statements about how people make decisions. d. People are always rational maximizers e. People are reluctant to change their minds in the face of new information
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3) Suppose that 40 percent of the voting population wish to spent Rs1,000 for artwork in City Hall, 25 percent wish to spent Rs20,000 and 35 percent wish to spend Rs 22,000 What is the median preferred outcome, the average preferred outcome and the modal preferred outcome ? a. Rs20,000; Rs20,000; Rs22,000 b. Rs1,000; Rs14,333; Rs1,000 c. Rs20,000; Rs13,100; Rs1,000 d. Rs1,000; Rs20,000; Rs22,000
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4) Which of the following best demonstrates the problem of moral hazard ? a. Josephine doesn’t buy health insurance because it is too expensive, and she is healthy b. A life insurance company forces Enzo to have a medical examination prior to selling him insurance c. Enzo drives more recklessly after he buys car insurance d. Fatima chooses to attend a well-respected college
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5) Which of the following must be true about a signal that is used to reveal private information in order for the signal to be effective ? a. It must be “as seen on TV” b. It must be free to the signaling party c. It must be costly to the signaling party but less costly to the party with higher-quality product d. It must be applied to an inexpensive product
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6) Nicole wants to avoid buying a car that is a lemon. She takes a car she would like to buy to her mechanic before she purchases it. This is known as ? a. screening b. signaling c. moral hazard d. adverse selection
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7) Which of the following is a response to People’s inconsistent behavior over time ? a. all of these answers b. forced contributions to a retirement plan c. year-end bonuses d. efficiency wages
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8) Jamil’s friend dies of a sudden heart attack. Jamil rushes to his doctor for an expensive physical examination. This response demonstrates that ? a. People give too much weight to a small number of vivid observations b. People easily change their minds when confronted with new information c. People enjoy going to the doctor d. People tend to plan ahead and follow through on their plans
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9) In the ultimatum game, what split would be rational for both the person proposing the split and the person who must accept or reject the split ? a. There is no rational solution b. 75/25 c. 99/1 d. 1/99 e. 50/50
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10) Which of the following is true under pairwise majority rule if people vote for the outcome closest to their most preferred outcome ? a. The average preferred outcome wins b. There is no clear winner due to Arrow’s Impossibility Theorem. c. The outcome preferred by the median voter wins d. The outcome preferred by the greatest number of voters wins.
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