曼昆經(jīng)濟(jì)學(xué)原理英文文案加習(xí)題答案章

1、22FRONTIERS OF MICROECONOMICSWHATS NEW IN THE SEVENTH EDITION:A new Case Study on Left-Digit Bias has been added and a new In the News feature on "Can Brain Science Improve Economics?" has been added. LEARNING OBJECTIVES:By the end of this chapter, students should understand:Øhow to e

2、xamine problems caused by asymmetric information.Øthe market solutions to asymmetric information.Øwhy democratic voting systems may not represent the preferences of society.Øwhy people may not always behave as rational maximizers.CONTEXT AND PURPOSE:Chapter 22 is the last chapter in t

3、he microeconomics portion of the text. It is the second of two unrelated chapters that introduce students to advanced topics in microeconomics. These two chapters are intended to whet their appetites for further study in economics. The purpose of Chapter 22 is to give students a taste of three topic

4、s on the frontier of microeconomic research. The first topic addressed is asymmetric information, a situation when one person in an economic relationship has more relevant knowledge than the other person does. The second topic is political economy, the application of economic tools to the understand

5、ing of the functioning of government. The third topic addressed is behavioral economics, the introduction of psychology into the study of economic issues.KEY POINTS:·In many economic transactions, information is asymmetric. When there are hidden actions, principals may be concerned that agents

6、suffer from the problem of moral hazard. When there are hidden characteristics, buyers may be concerned about the problem of adverse selection among the sellers. Private markets sometimes deal with asymmetric information with signaling and screening.·Although government policy can sometimes imp

7、rove market outcomes, governments are themselves imperfect institutions. The Condorcet paradox shows that the majority rule fails to produce transitive preferences for society, and Arrow's impossibility theorem shows that no voting system will be perfect. In many situations, democratic instituti

8、ons will produce the outcome desired by the median voter, regardless of the preferences of the rest of the electorate. Moreover, the individuals who set government policy may be motivated by self-interest rather than national interest.·The study of psychology and economics reveals that human de

9、cision making is more complex than is assumed in conventional economic theory. People are not always rational, they care about the fairness of economic outcomes (even to their own detriment), and they can be inconsistent over time.CHAPTER OUTLINE:This is a great chapter to get students interested in

10、 further study of economics. It is important for the students to learn that economics is a growing and developing science and that economists are always looking for new areas to study and new phenomena to explain.I.Asymmetric InformationA.Many times in life, one person holds more knowledge about wha

11、t is going on than another. Such a difference in access to relevant information is known as an information asymmetry.B.Examples1.A worker knows more than his employer about the level of his work effort. This is an example of a hidden action.2.A seller of a used car knows more than the buyer does abo

12、ut the car's condition. This is an example of a hidden characteristic.C.When there is asymmetric information, the party without the relevant knowledge would like to have such knowledge, but the other party may have an incentive to conceal it.D.Hidden Actions: Principals, Agents, and Moral Hazard

13、1.Important Definitionsa.Definition of moral hazard: the tendency of a person who is imperfectly monitored to engage in dishonest or otherwise undesirable behavior.b.Definition of agent: a person who is performing an act for another person, called the principal.c.Definition of principal: a person fo

14、r whom another person, called the agent, is performing some act.2.The employment relationship is the classic example.a.Workers (agents) may be tempted to shirk their work-related responsibilities because their employers (the principals) do not monitor their behavior closely.b.Employers can respond b

15、y providing better monitoring, paying higher wages, or delaying part of the worker's pay until later in the worker's life.3.FYI: Corporate Managementa.From an economic standpoint, the most important feature of the corporate form of organization is the separation of ownership and control.b.Th

16、is creates a principalagent problem where the shareholders are the principals and the managers are the agents.c.Managers goals may not always coincide with shareholders' goal of profit maximization.d.As a result, many managers are provided compensation packages that provide incentives to act in

17、the best interest of corporate profits.E.Hidden Characteristics: Adverse Selection and the Lemons Problem1.Definition of adverse selection: the tendency for the mix of unobserved attributes to become undesirable from the standpoint of an uninformed party.2.Examples include the used car market, the l

18、abor market, and the market for insurance.3.When markets suffer from adverse selection, the invisible hand does not necessarily work well.a.In the used car market, owners of "cherry" or "plum" cars may choose to keep them rather than sell them at a low price.b.In the labor market

19、, wages may be stuck at a level above the equilibrium wage, resulting in unemployment.c.In insurance markets, buyers with low risk may decline to purchase insurance because the price is too high.F.Signaling to Convey Private Information1.Definition of signaling: an action taken by an informed party

20、to reveal private information to an uninformed party.2.Examples of Signalinga.Firms may spend money on advertising to signal the high quality of their products.b.Students may spend time in school to signal that they are high-ability individuals.3.For a signal to be effective, it must be costly. Howe

21、ver, it must be less costly (or more beneficial) to the person or firm with the higher-quality product.4.Case Study: Gifts as Signalsa.Because people know their own preferences better than anyone else, we would expect that they would prefer cash gifts.b.However, the ability to choose the right gift

22、for someone may serve as a signal of an individual's love.c.Note that choosing the right gift is costly and the cost depends on how well the giver knows the recipient (which may be determined as a measure of the giver's level of interest in the recipient).G.Screening to Uncover Private Infor

23、mation1.Definition of screening: an action taken by an uninformed party to induce an informed party to reveal information.2.Examples of Screeninga.A buyer of a used car may ask to have the car examined by a mechanic prior to purchase.b.An insurance company may offer different policies that would lea

24、d safe or risky drivers to reveal themselves. Safe drivers are likely to prefer policies with low premiums and high deductibles. Risky drivers are more likely to prefer policies with higher premiums and low deductibles.H.Asymmetric Information and Public Policy1.Market failures such as externalities

25、, public goods, imperfect competition, and poverty show that governments can sometimes improve market outcomes.2.Asymmetric information is another reason why market outcomes may be inefficient.3.However, three factors make it difficult for the government to improve the outcome in some cases.a.The pr

26、ivate market can sometimes deal with information asymmetries on its own using a combination of signaling and screening.b.The government rarely has more information than the private parties do.c.The government is itself an imperfect institution.Activity 1A Market for LemonsType:In-class demonstration

27、Topics:Asymmetric information, signaling, regulationMaterials needed:Prepared instruction sheets and record sheetsTime:5060 minutesClass limitations:Works in any size class, although using a larger number of groups will result in a larger amount of time necessary to complete each roundPurposeThis cl

28、assroom experiment demonstrates how a market for lemons can develop when buyers have no information on the quality of a product available for sale.InstructionsDivide the class into seven groups, three sellers and four buyers. Try to keep the groups separated and make sure that students know not to r

29、eveal their cost or value information to anyone. Pass out instruction sheets and record sheets for each group. Here are the rules for the first few rounds of the game:1.Sellers must decide their product quality and price simultaneously. Each seller can choose only one product quality but can sell up

30、 to two units each period. Sellers' decisions are recorded and given to the instructor.2.Once all of the sellers have made their decisions, the instructor lists the sellers' product quality and the price on the board.3.The instructor draws a number from a hat (1 through 4) and this will be t

31、he first buyer to make a purchase. Buyers decide which firm to buy from based on preferred quality and price. Buyers may purchase only one unit each period. Once a seller has sold two units, he or she can sell no more and should be eliminated from the list of choices.4.Profit for sellers will be the

32、 difference between the price and the cost (given to them on their instruction sheets) for each unit sold. Due to rising marginal cost, the cost of the second unit is $1.00 more than the first. The cost information for each firm is:Quality 1Quality 2Quality 3Cost of 1st unit$1.75$4.95$11.35Cost of 2

33、nd unit$2.75$5.95$12.355.For the buyers, consumer surplus will be the difference between the value to the consumer (given on their instruction sheets) and the price paid. The value for each buyer is:Quality 1Quality 2Quality 3Value to the buyer$5.00$9.80$14.506.Once a few rounds have been played, th

34、e instructor should announce that he will only list the sellers' prices on the board. Buyers must base their decisions entirely on price information.Points for DiscussionBegin by discussing the results of the rounds where buyers and sellers had complete information.1.Do sellers or buyers benefit

35、 from a higher quality of product?2.What is the most efficient quality? (Which maximizes total surplus?)3.Suppose the market ended up with only Quality 2 products? Would it be efficient for a regulator to force firms to manufacture Quality 3 products? Why or why not?Students will generally figure ou

36、t that Quality 2 maximizes the sum of producer and consumer surplus in the market. To illustrate this point, the instructor can graph the supply and demand curves for each quality.Once you have discussed the market with full information, start a discussion on the results of the information asymmetry

37、.1.What happened in the market when buyers were unable to distinguish the product quality?2.Why were firms driven to produce the lowest quality?3.In reality, is there any way for a firm to reveal the quality of its product?Most students will reply that the producers were able to take advantage of bu

38、yers in this situation and thus cut product quality. Buyers quickly learned to protect themselves and only purchased lower priced goods. This led to a market where the only good available for sale is of the lowest quality.Students may discuss the ability of a firm to signal its quality through expen

39、sive advertisements or product guarantees and warranties.II.Political EconomyA.Definition of political economy: the study of government using the analytic methods of economics.B.The Condorcet Voting Paradox1.Most advanced societies rely on democratic principles, allowing the majority to set governme

40、nt policy.2.For most policy issues, the number of possible outcomes exceeds two.3.Example: Three possible outcomes (A, B, and C) and three voter types (Type 1, Type 2, and Type 3). The mayor of a town wishes to aggregate the individual preferences into preferences for society as a whole.Table 1Voter

41、 TypeType 1Type 2Type 3Percent of Electorate354520First ChoiceABCSecond ChoiceBCAThird ChoiceCABa.In pairwise majority voting, A would beat B, B would beat C, and C would beat A.b.This violates transitivity. We generally expect that if A is preferred to B and B is preferred to C, then A would be pre

42、ferred to C.c.Definition of Condorcet paradox: the failure of majority rule to produce transitive preferences for society.d.This implies that the order on which things are voted can determine the result.C.Arrow's Impossibility Theorem1.In a 1951 book, economist Kenneth Arrow examined if a perfec

43、t voting system exists.2.He assumes that society wants a voting scheme that satisfies social properties.a.Unanimity.b.Transitivity.c.Independence of irrelevant alternatives.d.No dictators.3.Arrow proved that no voting system could have all of these properties.4.Definition of Arrow impossibility theo

44、rem: a mathematical result showing that, under certain assumed conditions, there is no scheme for aggregating individual preferences into a valid set of social preferences.5.Arrows impossibility theorem implies that no matter what voting scheme society adopts for aggregating the preferences of its m

45、embers, in some way it will be flawed as a mechanism for social choice.D.The Median Voter Is King1.Example: A society is deciding how much money to spend on a public good. Each voter has a most-preferred budget and prefers outcomes closer to his preferred budget.Figure 12.Definition of median voter

46、theorem: a mathematical result showing that if voters are choosing a point along a line and each voter wants the point closest to his preferred point, then majority rule will pick the most preferred point of the median voter.a.The median voter is the voter exactly in the middle of the distribution.b

47、.On Figure 1, the median voter wants a budget of $10 billion.3.One implication of the median voter theorem is that if two political candidates are each trying to maximize their chance of election, they will both move their positions toward the median voter.4.Another implication of the median voter t

48、heorem is that minority views are not given much weight.E.Politicians Are People Too1.Politicians may be self-interested.2.Some politicians may be motivated by desire for reelection and others may be motivated by greed.III.Behavioral EconomicsA.Definition of behavioral economics: the subfield of eco

49、nomics that integrates the insights of psychology.B.Behavioral economics is a relatively new field in economics where economists make use of basic psychological insights into human behavior.C.People Arent Always Rational1.Economists assume that human beings are always rational.a.Firm owners maximize

50、 profit.b.Consumers maximize utility.c.Given constraints that they face, these individuals make decisions by rationally weighing all costs and benefits.2.Real people are often more complex than economists assume.a.They can be forgetful, impulsive, confused, emotional, and shortsighted.b.These imperf

51、ections suggest that humans should not be viewed as rational maximizers but as “satisficers,” where they choose options that are simply “good enough.”3.Studies of human decision making have found several systematic mistakes that people make.a.People are overconfident.b.People give too much weight to

52、 a small number of vivid observations.c.People are reluctant to change their minds.4.Case Study: Left-Digit Biasa.Studies suggest that buyers are excessively sensitive to a price's left-most digit.b.An irrational focus on the left-most digit is called left-digit bias.D.People Care about Fairness

53、1.Example: the ultimatum game.a.Two volunteers are told they are going to play a game and could win a total of $100.b.The game begins with a coin toss, which is used to assign the volunteers to the roles of Player A and Player B.c.Player As job is to propose a division of the prize between himself a

54、nd the other player.d.After Player A makes his proposal, Player B decides whether to accept or reject it.e.If Player B accepts the proposal, both players are paid according to the proposal. If Player B rejects the proposal, both players receive nothing.2.Conventional economic theory suggests that Pl

55、ayer A should know that if he offers $1 to Player B and keeps $99 for himself, Player B should accept it ($1 is greater than $0).3.In reality, when the offer made to Player B is small, Player B often rejects it.4.Knowing this, people in the role of Player A often offer a more substantial portion of

56、the money to Player B.5.This implies that people may be driven by a sense of fairness.E.People Are Inconsistent over Time1.Many times in life, people make plans for themselves but then fail to follow through.2.The desire for instant gratification can induce a decisionmaker to abandon his past plan.3

57、.An important implication is that people will try to find ways to commit their future selves to following through on their plans.F.In the News: Can Brain Science Improve Economics?1.A new branch of economics examines the biology of the brain to understand economic behavior.2.This article from Project Syndicate discusses neuroeconomics, the study of how the physical structures that underlie brain functioning affect economic d