Question 1

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

Accepted Answer

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

Question 2

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) A) and B)
F) A) and C)

Question 3

Adverse selection is a problem that arises:

Accepted Answer

A)   before the parties have entered into an agreement.
B)   after the parties have voluntarily entered into an agreement.
C)   either before or after the parties have entered into an agreement.
D)   rarely in any market.E) A) and B)
F) C) and D) A

Question 4

Adverse selection arises when:

Accepted Answer

A)   the wants of both parties are aligned with one another.
B)   buyers and sellers have different information about the quality of a good or the riskiness of a situation.
C)   buyers and sellers with the same information about the quality of a good or the riskiness of a situation seek each other out.
D)   people behave in a riskier way because they have incomplete information.E) None of the above
F) A) and B)

Question 5

Filling gaps in your information by generalizing based on observable characteristics is called:

Accepted Answer

A)   statistical discrimination.
B)   signaling.
C)   building a reputation.
D)   proofing.E) C) and D)
F) None of the above

Question 6

The government can help solve the information asymmetry problem by:

Accepted Answer

A)   telling less-informed parties not to participate in the market.
B)   excluding those who do not have complete information from the market.
C)   making markets illegal where information asymmetry is significant.
D)   requiring the more informed party to reveal the missing information.E) None of the above
F) B) and C)

Question 7

Problems are most likely to arise when:

Accepted Answer

A)   complete information is impossible to obtain.
B)   people have good enough information to make acceptable choices.
C)   one person knows more than another.
D)   both parties lack the same information.E) All of the above
F) C) and D)

Question 8

Moral hazard:

Accepted Answer

A)   is about the unobserved characteristics of people.
B)   is about the unobserved actions of people.
C)   occurs before the parties have entered into an agreement.
D)   None of these statements is true.E) All of the above
F) B) and C)

Question 9

Statistical discrimination is when you take action to:

Accepted Answer

A)   reveal private information about someone else.
B)   reveal one's own private information.
C)   find out the opportunity cost of acquiring more information.
D)   fill gaps in your information by generalizing based on observable characteristics.E) None of the above
F) B) and C)

Question 10

An important type of information asymmetry is:

Accepted Answer

A)   adverse selection.
B)   ethical constraint.
C)   advantage imbalance.
D)   information hazard.E) A) and C)
F) B) and C)

Question 11

The classic example used to discuss the problem of adverse selection is:

Accepted Answer

A)   fruit and produce markets, such as lemons.
B)   workers who shirk when their effort isn't closely monitored.
C)   the imbalance of information that exists between a buyer and seller of a used car.
D)   drivers with insurance who tend to drive more recklessly.E) A) and B)
F) A) and C) C

Question 12

A typical reason moral hazard arises in the workplace is:

Accepted Answer

A)   employees do not directly benefit from their effort, only their time spent at work.
B)   employees get paid the same, whether they try really hard or not.
C)   employees have no incentive to let the employer know how hard they can really work, because that might be expected of them all the time.
D)   All of these statements are true.E) C) and D)
F) A) and D)

Question 13

Governments choose to mandate participation in a program,like auto insurance,when:

Accepted Answer

A)   the functioning of those markets is thought to be in the public interest.
B)   the market would not otherwise exist.
C)   the market would exist illegally.
D)   None of these statements is true.E) B) and D)
F) A) and B)

Question 14

Building a good reputation:

Accepted Answer

A)   is a form of screening.
B)   is a form of signaling.
C)   is a form of statistical discrimination.
D)   None of these statements is true.E) B) and D)
F) A) and B) B

Question 15

The difference between moral hazard and adverse selection is that moral hazard is about:

Accepted Answer

A)   unobserved characteristics of people occurring before parties enter into an agreement.
B)   never happens when adverse selection is a problem.
C)   actions that arise after the parties enter an agreement
D)   None of these statements is true.E) A) and B)
F) C) and D)

Question 16

Adverse selection occurs in the used car market because:

Accepted Answer

A)   the seller has more information than the buyer.
B)   the buyer has more information than the seller.
C)   both the buyer and the seller have incomplete information.
D)   Any of these could be the cause of adverse selection in the used car market.E) C) and D)
F) B) and D)

Question 17

The principal-agent problem occurs:

Accepted Answer

A)   when the principal has less information than the agent.
B)   when the principal has more information than the agent.
C)   when the agent has less information than the principal.
D)   not observed in reality.E) None of the above
F) B) and C)

Question 18

The problem arising in the used car market can be alleviated by

Accepted Answer

A)   providing buyers with more complete information on the condition of a used car.
B)   sellers offering warranties.
C)   having third parties certify the condition of a used car.
D)   All of these statements are true.E) A) and B)
F) All of the above

Question 19

Showing up to a job interview and not knowing any information about the company is an example of a:

Accepted Answer

A)   positive signal.
B)   negative signal.
C)   positive screen.
D)   negative screen.E) B) and C)
F) None of the above

Question 20

What's the opportunity cost of taking an unfair advantage in a deal?

Accepted Answer

A)   Probably nothing, if the transaction is only taking place once.
B)   Building a reputation for being untrustworthy if the deal is likely to be repeated.
C)   Future deals may not occur or may come at a much higher cost.
D)   All of these statements are true.E) All of the above
F) B) and C)

Exam 10: Information

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Adverse selection is a problem that arises:

Correct AnswerverifiedA

Adverse selection arises when:

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Filling gaps in your information by generalizing based on observable characteristics is called:

Correct AnswerverifiedShow Answer

The government can help solve the information asymmetry problem by:

Correct AnswerverifiedShow Answer

Problems are most likely to arise when:

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Moral hazard:

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Statistical discrimination is when you take action to:

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An important type of information asymmetry is:

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The classic example used to discuss the problem of adverse selection is:

Correct AnswerverifiedC

A typical reason moral hazard arises in the workplace is:

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Governments choose to mandate participation in a program,like auto insurance,when:

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Building a good reputation:

Correct AnswerverifiedB

The difference between moral hazard and adverse selection is that moral hazard is about:

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Adverse selection occurs in the used car market because:

Correct AnswerverifiedShow Answer

The principal-agent problem occurs:

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The problem arising in the used car market can be alleviated by

Correct AnswerverifiedShow Answer

Showing up to a job interview and not knowing any information about the company is an example of a:

Correct AnswerverifiedShow Answer

What's the opportunity cost of taking an unfair advantage in a deal?

Correct AnswerverifiedShow Answer

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A

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C

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B

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