Question 1

If the moral hazard problem in automobile driving were to be eliminated, the marginal cost of driving would be:

Accepted Answer

A)  lowered enough to pull the amount of driving back down to the efficient level. 
B)  lowered enough to raise the amount of driving back up to the efficient level. 
C)  raised enough to pull the amount of driving back down to the efficient level. 
D)  raised enough to raise the amount of driving back up to the efficient level. 
E)  lowered back down to the efficient level, relieving the stress on market forces. 
A)  lowered enough to pull the amount of driving back down to the efficient level. 
B)  lowered enough to raise the amount of driving back up to the efficient level. 
C)  raised enough to pull the amount of driving back down to the efficient level. 
D)  raised enough to raise the amount of driving back up to the efficient level. 
E)  lowered back down to the efficient level, relieving the stress on market forces.

Question 2

Scenario 17.2
Consider the information below:
For Group K the cost of attaining an educational level y is
CS1U1B1KS1U1B0(y) = $2,000y
and for Group M the cost of attaining that level is
CS1U1B1MS1U1B0(y) = $4,000y.
Employees will be offered $30,000 if they have   where y* is an education threshold determined by the employer. They will be offered $90,000 if they have  
-Refer to Scenario 17.2. If the threshold educational level y* is set at 45,

Accepted Answer

A)  only individuals in Group K will attain it. 
B)  only individuals in Group M will attain it. 
C)  individuals in both groups will attain it. 
D)  no individuals will attain it. 
E)  some fraction of individuals in each group will attain it. 
A)  only individuals in Group K will attain it. 
B)  only individuals in Group M will attain it. 
C)  individuals in both groups will attain it. 
D)  no individuals will attain it. 
E)  some fraction of individuals in each group will attain it.

Question 3

Scenario 17.2
Consider the information below:
For Group K the cost of attaining an educational level y is
CS1U1B1KS1U1B0(y) = $2,000y
and for Group M the cost of attaining that level is
CS1U1B1MS1U1B0(y) = $4,000y.
Employees will be offered $30,000 if they have   where y* is an education threshold determined by the employer. They will be offered $90,000 if they have  
-Refer to Scenario 17.2. If the threshold educational level y* is set at 13 1/3,

Accepted Answer

A)  only individuals in Group K will attain it. 
B)  only individuals in Group M will attain it. 
C)  individuals in both groups will attain it. 
D)  no individuals will attain it. 
E)  some fraction of individuals in each group will attain it. 
A)  only individuals in Group K will attain it. 
B)  only individuals in Group M will attain it. 
C)  individuals in both groups will attain it. 
D)  no individuals will attain it. 
E)  some fraction of individuals in each group will attain it.

Question 4

Job market signals like dressing well for interviews are not especially effective because:

Accepted Answer

A)  the cost of dressing well is about the same for high-quality and low-quality workers. 
B)  many businesses have adopted casual office attire, so dressing well is not important to the firm. 
C)  federal labor laws prohibit firms from using dress or appearance as an employment criterion. 
D)  none of the above 
A)  the cost of dressing well is about the same for high-quality and low-quality workers. 
B)  many businesses have adopted casual office attire, so dressing well is not important to the firm. 
C)  federal labor laws prohibit firms from using dress or appearance as an employment criterion. 
D)  none of the above

Question 5

Use the following statements to answer this question: I. Efficiency wage theory was developed to help explain persistent unemployment and wage discrimination in labor markets.
II) Efficiency wage theory recognizes that labor productivity may be affected by the wage rate.

Accepted Answer

A)  I and II are true. 
B)  I is true and II is false. 
C)  II is true and I is false. 
D)  I and II are false. 
A)  I and II are true. 
B)  I is true and II is false. 
C)  II is true and I is false. 
D)  I and II are false.

Question 6

When firms participate in group health insurance for all employees, it:

Accepted Answer

A)  raises rates for everyone, because it brings unhealthy people into the pool. 
B)  raises rates for unhealthy people. 
C)  may lower rates for all people to the extent that it keeps healthy people in the pool. 
D)  prevents unhealthy people from "selecting out," to the detriment of healthy people. 
E)  increases the amount of information available to insurers about the population. 
A)  raises rates for everyone, because it brings unhealthy people into the pool. 
B)  raises rates for unhealthy people. 
C)  may lower rates for all people to the extent that it keeps healthy people in the pool. 
D)  prevents unhealthy people from "selecting out," to the detriment of healthy people. 
E)  increases the amount of information available to insurers about the population.

Question 7

Managers' pursuit of which of the following objectives would NOT lead to a principal-agent problem in a corporation?

Accepted Answer

A)  The corporation's growth 
B)  Increased market share for the corporation 
C)  The maximum possible profit for the corporation 
D)  A great "golden parachute" or retirement package 
E)  Increased current salary and fringe benefits 
A)  The corporation's growth 
B)  Increased market share for the corporation 
C)  The maximum possible profit for the corporation 
D)  A great "golden parachute" or retirement package 
E)  Increased current salary and fringe benefits

Question 8

Scenario 17.2
Consider the information below:
For Group K the cost of attaining an educational level y is
CS1U1B1KS1U1B0(y) = $2,000y
and for Group M the cost of attaining that level is
CS1U1B1MS1U1B0(y) = $4,000y.
Employees will be offered $30,000 if they have   where y* is an education threshold determined by the employer. They will be offered $90,000 if they have  
-Refer to Scenario 17.2. If the threshold educational level y* is set at 20,

Accepted Answer

A)  only individuals in Group K will attain it. 
B)  only individuals in Group M will attain it. 
C)  individuals in both groups will attain it. 
D)  no individuals will attain it. 
E)  some fraction of individuals in each group will attain it. 
A)  only individuals in Group K will attain it. 
B)  only individuals in Group M will attain it. 
C)  individuals in both groups will attain it. 
D)  no individuals will attain it. 
E)  some fraction of individuals in each group will attain it.

Question 9

Scenario 17.4
Consider the following information:
StowUrStuff Storage is located slightly below sea level in a coastal town. It could build and maintain a flood control system around its property at an annual cost of $1000, and if it did so, the probability of a flood's doing $1,000,000 in damage during the year would be .005. With no flood control system, the probability of such a flood would be .01.
-Refer to Scenario 17.4. If the flood control system were not in place, the insurer would not be willing to insure against the flood for any premium less than:

Accepted Answer

A)  $5,000. 
B)  $10,000. 
C)  $100,000. 
D)  $200,000. 
E)  $1,000,000. 
A)  $5,000. 
B)  $10,000. 
C)  $100,000. 
D)  $200,000. 
E)  $1,000,000.

Question 10

Scenario 17.2
Consider the information below:
For Group K the cost of attaining an educational level y is
CS1U1B1KS1U1B0(y) = $2,000y
and for Group M the cost of attaining that level is
CS1U1B1MS1U1B0(y) = $4,000y.
Employees will be offered $30,000 if they have   where y* is an education threshold determined by the employer. They will be offered $90,000 if they have  
-Refer to Scenario 17.2. The highest level of y* that can be set and still have the high-productivity people choose to meet it is:

Accepted Answer

A)  90. 
B)  60. 
C)  30. 
D)  22.5. 
E)  15. 
A)  90. 
B)  60. 
C)  30. 
D)  22.5. 
E)  15.

Question 11

When states make car insurance mandatory for all drivers, it:

Accepted Answer

A)  raises rates for everyone because it brings bad drivers into the pool. 
B)  raises rates for high-risk drivers. 
C)  may lower rates for all drivers to the extent that it keeps low-risk drivers in the pool. 
D)  prevents high-risk drivers from "selecting out," to the detriment of low-risk drivers. 
E)  increases the amount of information available to insurers about the population. 
A)  raises rates for everyone because it brings bad drivers into the pool. 
B)  raises rates for high-risk drivers. 
C)  may lower rates for all drivers to the extent that it keeps low-risk drivers in the pool. 
D)  prevents high-risk drivers from "selecting out," to the detriment of low-risk drivers. 
E)  increases the amount of information available to insurers about the population.

Question 12

Ron owns an automotive repair center. Ron provides high quality automotive repair. The market price for high quality service is $225 while the market price for standard service is $150. Currently, Ron only has a reputation for providing standard service. Ron's marginal cost function of providing high quality service is:   Ron's marginal cost function of providing standard service is:   Butch's Marketing has told Ron that if he hires Butch's firm to advertise and market Ron's high quality services, consumers will pay him the high quality service market price providing he delivers that quality. What is the most amount of money Ron is willing to pay for Butch's services?

Accepted Answer

If Ron can sell his high quality service

Question 13

Scenario 17.4
Consider the following information:
StowUrStuff Storage is located slightly below sea level in a coastal town. It could build and maintain a flood control system around its property at an annual cost of $1000, and if it did so, the probability of a flood's doing $1,000,000 in damage during the year would be .005. With no flood control system, the probability of such a flood would be .01.
-Refer to Scenario 17.4. If there is no flood insurance and the flood control system is in place, the expected loss from a flood is:

Accepted Answer

A)  $5,000. 
B)  $10,000. 
C)  $100,000. 
D)  $200,000. 
E)  $1,000,000. 
A)  $5,000. 
B)  $10,000. 
C)  $100,000. 
D)  $200,000. 
E)  $1,000,000.

Question 14

Figure 17.6.1
-The "no shirking constraint" (NSC) curve is:

Accepted Answer

A)  downward-sloping to reflect the fact that at higher wages, firms will monitor workers more to see whether they are shirking. 
B)  downward-sloping to reflect the fact that shirking tends to be higher in lower-paying industries. 
C)  upward-sloping because at high levels of unemployment, workers will refrain from slacking without much other incentive. 
D)  upward-sloping because at high levels of employment, many "slacking" individuals have been hired. 
E)  vertical because the constraint represents the absolute amount of time a firm will tolerate workers' slacking without laying them off. 
A)  downward-sloping to reflect the fact that at higher wages, firms will monitor workers more to see whether they are shirking. 
B)  downward-sloping to reflect the fact that shirking tends to be higher in lower-paying industries. 
C)  upward-sloping because at high levels of unemployment, workers will refrain from slacking without much other incentive. 
D)  upward-sloping because at high levels of employment, many "slacking" individuals have been hired. 
E)  vertical because the constraint represents the absolute amount of time a firm will tolerate workers' slacking without laying them off.

Question 15

When a moral hazard problem exists for automobile driving, the marginal cost of driving:

Accepted Answer

A)  is lowered, and the amount of driving done is raised above the efficient level. 
B)  is lowered, and the amount of driving done is lowered below the efficient level. 
C)  is raised, and the amount of driving done is raised above the efficient level. 
D)  is raised, and the amount of driving done is lowered below the efficient level. 
E)  is raised above the efficient level, but market forces keep the total amount of driving is kept at the efficient level. 
A)  is lowered, and the amount of driving done is raised above the efficient level. 
B)  is lowered, and the amount of driving done is lowered below the efficient level. 
C)  is raised, and the amount of driving done is raised above the efficient level. 
D)  is raised, and the amount of driving done is lowered below the efficient level. 
E)  is raised above the efficient level, but market forces keep the total amount of driving is kept at the efficient level.

Question 16

The efficiency wage is:

Accepted Answer

A)  a wage at which there is no unemployment, and shirking workers are not counted in the pool of total labor. 
B)  a wage at which there is a positive amount of unemployment. Individuals who are fired for shirking will be penalized with a period of unemployment. 
C)  a wage at which there is a shortage of labor. Firms who fire a worker for shirking will be able to hire another one easily. 
D)  the wage that is paid to high-quality, non-shirking workers. Other workers are paid the market-clearing wage. 
E)  the wage that subtracts the cost of shirking from the market-clearing wage to determine that which is really paid. 
A)  a wage at which there is no unemployment, and shirking workers are not counted in the pool of total labor. 
B)  a wage at which there is a positive amount of unemployment. Individuals who are fired for shirking will be penalized with a period of unemployment. 
C)  a wage at which there is a shortage of labor. Firms who fire a worker for shirking will be able to hire another one easily. 
D)  the wage that is paid to high-quality, non-shirking workers. Other workers are paid the market-clearing wage. 
E)  the wage that subtracts the cost of shirking from the market-clearing wage to determine that which is really paid.

Question 17

Figure 17.2.1
-If grades are to be a successful signal to potential employers of a student's qualities, then higher grades must be:

Accepted Answer

A)  easier for high-productivity students to earn than for low-productivity students to earn. 
B)  easier for low-productivity students to earn than for high-productivity students to earn. 
C)  easy for employers to check. 
D)  used for all future promotions within the firm. 
E)  often referred to in the hiring process. 
A)  easier for high-productivity students to earn than for low-productivity students to earn. 
B)  easier for low-productivity students to earn than for high-productivity students to earn. 
C)  easy for employers to check. 
D)  used for all future promotions within the firm. 
E)  often referred to in the hiring process.

Question 18

Asymmetric information problems arise:

Accepted Answer

A)  in horizontally integrated firms, but not vertically integrated firms. 
B)  in vertically integrated firms, but not horizontally integrated firms. 
C)  in both vertically and horizontally integrated firms. 
D)  only in firms that do not have the advantage of either horizontal or vertical integration. 
E)  only when a single firm is both horizontally and vertically integrated. 
A)  in horizontally integrated firms, but not vertically integrated firms. 
B)  in vertically integrated firms, but not horizontally integrated firms. 
C)  in both vertically and horizontally integrated firms. 
D)  only in firms that do not have the advantage of either horizontal or vertical integration. 
E)  only when a single firm is both horizontally and vertically integrated.

Question 19

Figure 17.2.1
-Refer to Figure 17.2.1 above. The optimal choice of a college education is four years:

Accepted Answer

A)  for Group I. 
B)  for Group II. 
C)  For both groups. 
D)  For neither group. 
A)  for Group I. 
B)  for Group II. 
C)  For both groups. 
D)  For neither group.

Question 20

Ms. Moneynickel operates a retail store in the local mall. The marginal product of labor at the mall is a function of employee effort level. The marginal product of employee effort is:   Ms. Moneynickel can sell all the product she stocks for $20. Employees determine their effort level according to the function:   where   is the minimum wage. Currently, the minimum wage is $6. The marginal cost to Ms. Moneynickel of effort is:   What is the wage rate Ms. Moneynickel should offer her employees to maximize profits? If the minimum wage is increased by $1, how much should Ms. Moneynickel increase the wage rate paid to her employees?

Accepted Answer

Ms. Moneynickel's marginal revenue of th

If the moral hazard problem in automobile driving were to be eliminated, the marginal cost of driving would be:

Job market signals like dressing well for interviews are not especially effective because:

Use the following statements to answer this question: I. Efficiency wage theory was developed to help explain persistent unemployment and wage discrimination in labor markets. II) Efficiency wage theory recognizes that labor productivity may be affected by the wage rate.

When firms participate in group health insurance for all employees, it:

Managers' pursuit of which of the following objectives would NOT lead to a principal-agent problem in a corporation?

When states make car insurance mandatory for all drivers, it:

Figure 17.6.1 -The "no shirking constraint" (NSC) curve is:

When a moral hazard problem exists for automobile driving, the marginal cost of driving:

The efficiency wage is:

Figure 17.2.1 -If grades are to be a successful signal to potential employers of a student's qualities, then higher grades must be:

Asymmetric information problems arise:

Figure 17.2.1 -Refer to Figure 17.2.1 above. The optimal choice of a college education is four years:

Preliminaries

The Basics of Supply and Demand

Consumer Behavior

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

Profit Maximization and Competitive Supply

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Markets for Factor Inputs

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Externalities and Public Goods

Behavioral Economics

Filters

Exam 17: Markets With Asymmetric Information

If the moral hazard problem in automobile driving were to be eliminated, the marginal cost of driving would be:

Job market signals like dressing well for interviews are not especially effective because:

Use the following statements to answer this question: I. Efficiency wage theory was developed to help explain persistent unemployment and wage discrimination in labor markets. II) Efficiency wage theory recognizes that labor productivity may be affected by the wage rate.

When firms participate in group health insurance for all employees, it:

Managers' pursuit of which of the following objectives would NOT lead to a principal-agent problem in a corporation?

When states make car insurance mandatory for all drivers, it:

Figure 17.6.1 -The "no shirking constraint" (NSC) curve is:

When a moral hazard problem exists for automobile driving, the marginal cost of driving:

The efficiency wage is:

Figure 17.2.1 -If grades are to be a successful signal to potential employers of a student's qualities, then higher grades must be:

Asymmetric information problems arise:

Figure 17.2.1 -Refer to Figure 17.2.1 above. The optimal choice of a college education is four years:

Preliminaries

The Basics of Supply and Demand

Consumer Behavior

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

Profit Maximization and Competitive Supply

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Markets for Factor Inputs

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Externalities and Public Goods

Behavioral Economics

Filters