Question

Question 46

1. Adverse selection may lead to

   	a.	owners of used cars choosing to keep them rather than sell them at the low price that skeptical buyers are willing to pay.
   	b.	wages being stuck above the level that balances supply and demand, resulting in unemployment.
   	c.	buyers with low risk choosing to remain uninsured because the policies they are offered fail to reflect their true characteristics.
   	d.	All of the above are correct.

Question 47

1. According to the median voter theorem, majority rule will

   	a.	produce the outcome least preferred by the median voter.
   	b.	produce an outcome that is inconsistent with transitive preferences.
   	c.	produce the outcome most preferred by the median voter.
   	d.	always produce an inconclusive outcome.

Question 48

1. One implication of the Condorcet paradox is

   	a.	that when there are only two items being voted on the order matters.
   	b.	that you do not want to be in charge of arranging which items are voted upon first.
   	c.	that the order in which things are voted on can affect the result.
   	d.	that the order in which things are voted on is irrelevant.

Answer 1

ANs 46)

Adverse Selection is the phenomenon in which different players of market have assymetric information amongst themselves.

Option A describes Lemons Market in which due to hidden information regarding bad quality used cars even good quality used cars get lower than the price the owner of good car values hence they keep the used cars with them rather selling them in the market

Option C as to avoid moral hazard/ assymetric information problems insurance companies set the premium value considerably high which the keep no incentive to buy the insurance policy for low risk agents

Hence option D is correct

Ans 47)

Option C is correct as per the definition of median voter because the utility function is maximized in the close vicinity of median voter

Option C is correct

Ans 48)

Ordering can affect the results given by Condorcet paradox because in ordering if the election between voters A, B, C reveals that A>B>C reveals as A is the winner but it is seen most of the time A>B>C>A which is condorcet cyclicality and doesn't help to identify the winner of election

Option C is correct