ch 22 terms

Question 1

define asymmetric info

Answer 1

one party better informed than the other
impacts demand and supply

Question 2

define agent

Answer 2

someone who performs task for another

Question 3

define principal

Answer 3

i hire someone else to do stuff

Question 4

define median voter curve

Answer 4

if left party is further away from middle than right is, median voters will vote for closer to their beliefs

Question 5

define hidden action

Answer 5

i do something that you are not aware of
(slacking during work)

Question 6

define hidden characteristic

Answer 6

one knows more than the other about good being sold

Question 7

define moral hazard

Answer 7

risk of bad action taken by agent without principal supervising

Question 8

define principal-agent problem

Answer 8

employer and employer have misaligned incentives

Question 9

how can principal combat principal-agent problem

Answer 9

more monitoring
efficiency wage
delayed payment - year end bonus

Question 10

define adverse selection

Answer 10

buyer and seller don’t have same info

Question 11

define signalling

Answer 11

informed party credibly reveals private info
ex. ads, education

Question 12

what must occur for signalling to be a effective

Answer 12

must be less costly for party with higher quality product

Question 13

define screening

Answer 13

uninformed party induces informed party to reveal private info

Question 14

define condorcet voting paradox

Answer 14

democratic outcomes between 3 options do not always obey transitivity

Question 15

define transitivity

Answer 15

if A>B
B>C
A should > C

Question 16

arrows 4 desirable voting system properties

Answer 16

unanimity
transitivity
independance of irrelevant alternatives
no dictators

Question 17

define unanimity

Answer 17

unanimous

Question 18

define independence of irrelevant alternatives

Answer 18

choice between two should not be affected by addition or removal of a third irrelevant

Question 19

examples of adverse selection

Answer 19

used car market
life insurance

Question 20

arrows impossibility theorem

Answer 20

no voting system satisfies all four properties

Question 21

define median voter theorem

Answer 21

math shows that majority rule will pick outcome most preferred by median voter

Question 22

why does median voter win

Answer 22

it’s the less extreme option on the political spectrum

very few are extremeists

Question 23

define behavioural economics

Answer 23

new field of economics using psych principals
sees that consumers aren’t that rational

Question 24

define satisfacer

Answer 24

someone who will accept good enough rather than going all the way to optimal

Question 25

define
people are inconsistent over time

Answer 25

ppl prefer instant gratification to long term saving

Question 26

define consumer intertia

Answer 26

consumer will pick same choice over time even if better option exists

prefer old habit