Question 1

The principal-agent problem:

Accepted Answer

A)  is commonly seen in the employer-employee relationship.
B)  is when the principal has less information than the agent.
C)  is the source of incentive for employees to slack off.
D)  All of these statements are true.E) B) and C)
F) A) and C)

Question 2

When the parties to a deal have access to different information:

Accepted Answer

A)  markets are often inefficient.
B)  markets can fall apart entirely.
C)  the parties still try to make the best decision with limited information.
D)  All of these statements are true.E) None of the above
F) All of the above

Question 3

A landlord requiring potential tenants to provide a rental history is an example of:

Accepted Answer

A)  screening.
B)  signaling.
C)  statistical discrimination.
D)  building a reputation.E) B) and C)
F) B) and D)

Question 4

One way to solve the problems caused by information asymmetry is:

Accepted Answer

A)  screening.
B)  signaling.
C)  building a reputation.
D)  All of these are solutions to information asymmetry.E) B) and D)
F) None of the above

Question 5

The used car market is:

Accepted Answer

A)  used to describe the "lemons" problem.
B)  a perfect example of what happens when there is an imbalance of information present in a market.
C)  subject to the problem of adverse selection.
D)  All of these statements are true.E) A) and B)
F) A) and C)

Question 6

Certifying a used car through a brand dealership is one way to:

Accepted Answer

A)  credibly screen out lemons.
B)  credibly signal the car is not a lemon.
C)  unreliably screen out lemons.
D)  unreliably signal that the car is not a lemon.E) None of the above
F) All of the above

Question 7

When you are faced with a lack of information concerning a purchase,you should:

Accepted Answer

A)  consider the opportunity cost of gaining more information.
B)  always seek out the most information you can before making a purchase.
C)  not make the purchase without complete information.
D)  None of these statements is true.E) All of the above
F) C) and D)

Question 8

The presence of adverse selection:

Accepted Answer

A)  reduces the efficiency of markets.
B)  increases the efficiency of markets.
C)  does not affect the efficiency of markets.
D)  makes the buyer less efficient and the seller more efficient.E) A) and C)
F) A) and B)

Question 9

Because of the lack of buyer's information about a perfectly functioning used car:

Accepted Answer

A)  the buyer will pay less than what it's worth because of the probability it will be a lemon.
B)  sellers of perfectly functioning used cars will be less likely to enter the market.
C)  the market will eventually become saturated with lemons.
D)  All of these statements are true.E) C) and D)
F) A) and C)

Question 10

A consequence of adverse selection is:

Accepted Answer

A)  buyers may lose surplus they would have gained with more complete information.
B)  sellers may lose surplus they would have gained with more complete information.
C)  transactions do not take place that would have been possible if the parties had the same information.
D)  All of these statements are true.E) B) and C)
F) A) and D)

Question 11

Government mandating that every driver have a minimum amount of car insurance addresses the problem of:

Accepted Answer

A)  adverse selection.
B)  moral hazard.
C)  illegal screening.
D)  government interference.E) B) and C)
F) C) and D)

Question 12

Because the seller of a used car has more information than the buyer:

Accepted Answer

A)  the problem of adverse selection occurs.
B)  the problem of moral hazard occurs.
C)  the problem of information overload occurs.
D)  the problem of bargaining imbalance occurs.E) All of the above
F) A) and D)

Question 13

Some policy-makers have suggested that mandatory health insurance coverage would:

Accepted Answer

A)  help to reduce the cost of health care.
B)  would overcome adverse selection in the market for health insurance.
C)  keep premiums lower than if healthy people could opt out.
D)  All of these statements are true.E) B) and C)
F) A) and D)

Question 14

Information asymmetry is not a problem when:

Accepted Answer

A)  the wants of both parties are aligned with one another.
B)  the wants of both parties are opposed to one another.
C)  the constraints of both parties are identical.
D)  neither party has any constraint.E) A) and B)
F) All of the above

Question 15

Adverse selection:

Accepted Answer

A)  results from unobserved characteristics of people or commodities.
B)  is about the actions of people.
C)  occurs after the parties have entered into an agreement.
D)  All of these statements are true.E) A) and D)
F) B) and C)

Question 16

Information asymmetry means:

Accepted Answer

A)  a situation in which one person knows more than another.
B)  people have good enough information to make acceptable choices,but not complete information.
C)  complete information is not possible to obtain.
D)  the lack of information in a market prevents it from existing.E) All of the above
F) A) and D)

Question 17

An approach that can be taken by someone directly involved in a transaction to solve the problems caused by information asymmetry is:

Accepted Answer

A)  proofing.
B)  building a reputation.
C)  disclosure laws.
D)  mandating that information be shared.E) B) and C)
F) C) and D)

Question 18

Wearing a suit to a job interview is an example of a:

Accepted Answer

A)  positive signal.
B)  negative signal.
C)  positive screen.
D)  negative screen.E) C) and D)
F) A) and D)

Question 19

One effect of government mandating participation in the auto insurance market is it leads to:

Accepted Answer

A)  lower premiums for all participants.
B)  higher premiums for all participants.
C)  the collapse of the market.
D)  free coverage for some participants.E) B) and D)
F) All of the above

Question 20

One way to solve the problems caused by information asymmetry is:

Accepted Answer

A)  surfing.
B)  signaling.
C)  proofing.
D)  All of these are solutions to information asymmetry.E) B) and D)
F) C) and D)

Exam 10: Information

Information asymmetry means:

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A landlord requiring potential tenants to provide a rental history is an example of:

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An approach that can be taken by someone directly involved in a transaction to solve the problems caused by information asymmetry is:

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One way to solve the problems caused by information asymmetry is:

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Because the seller of a used car has more information than the buyer:

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The principal-agent problem:

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One way to solve the problems caused by information asymmetry is:

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Adverse selection:

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Wearing a suit to a job interview is an example of a:

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Government mandating that every driver have a minimum amount of car insurance addresses the problem of:

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Certifying a used car through a brand dealership is one way to:

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When you are faced with a lack of information concerning a purchase,you should:

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One effect of government mandating participation in the auto insurance market is it leads to:

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The used car market is:

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A consequence of adverse selection is:

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When the parties to a deal have access to different information:

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Because of the lack of buyer's information about a perfectly functioning used car:

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The presence of adverse selection:

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Some policy-makers have suggested that mandatory health insurance coverage would:

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Information asymmetry is not a problem when:

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