Question 1

Firms that have several plants that produce the same or related products are said to be:

Accepted Answer

A) horizontally integrated. 
B) vertically integrated. 
C) conglomerates. 
D) cooperatives. 
A) horizontally integrated. 
B) vertically integrated. 
C) conglomerates. 
D) cooperatives.

Question 2

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 3

Suppose new electronic devices make it easier to monitor the effort levels of workers.What happens to the NSC curve in the efficiency wage model?

Accepted Answer

A) Shifts upward 
B) Shifts downward 
C) Remains the same 
D) The NSC curve remains the same,and the labor supply curve shifts leftward because shirking workers will leave the labor force. 
A) Shifts upward 
B) Shifts downward 
C) Remains the same 
D) The NSC curve remains the same,and the labor supply curve shifts leftward because shirking workers will leave the labor force.

Question 4

The problem of adverse selection in health insurance leads to a situation in which

Accepted Answer

A) health insurance covers inappropriate items for the population it serves. 
B) overinsurance of the premium-paying population occurs. 
C) underinsurance of the premium-paying population occurs. 
D) the percentage of the premium-paying population that is healthy rises,squeezing unhealthy individuals out of the market. 
E) the percentage of the premium-paying population that is unhealthy rises,squeezing healthy individuals out of the market. 
A) health insurance covers inappropriate items for the population it serves. 
B) overinsurance of the premium-paying population occurs. 
C) underinsurance of the premium-paying population occurs. 
D) the percentage of the premium-paying population that is healthy rises,squeezing unhealthy individuals out of the market. 
E) the percentage of the premium-paying population that is unhealthy rises,squeezing healthy individuals out of the market.

Question 5

Explain what the principal-agent problem is,and explain evidence of its existence in hospitals in the United States.

Accepted Answer

The principal-agent problem is an exampl

Question 6

In the insurance market,"moral hazard" refers to the problem that

Accepted Answer

A) insurers can't tell high-risk customers from low-risk customers. 
B) high-risk customers have an incentive to give false signals to make themselves look like low-risk customers. 
C) companies may unfairly lump individuals together by race,sex,age or other characteristics in an attempt to use demographic data to pinpoint high-risk populations. 
D) individuals are willing and able to pay different amounts for insurance,but must all be charged the same amount. 
E) individuals may change their behavior after the insurance is bought,so that they behave in a more high-risk manner than they did before. 
A) insurers can't tell high-risk customers from low-risk customers. 
B) high-risk customers have an incentive to give false signals to make themselves look like low-risk customers. 
C) companies may unfairly lump individuals together by race,sex,age or other characteristics in an attempt to use demographic data to pinpoint high-risk populations. 
D) individuals are willing and able to pay different amounts for insurance,but must all be charged the same amount. 
E) individuals may change their behavior after the insurance is bought,so that they behave in a more high-risk manner than they did before.

Question 7

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 8

The principal-agent problem of ownership vs.control of the corporation tends to get worse when

Accepted Answer

A) stock in a corporation is held exclusively by a small number of people who control the company's day-to-day operations. 
B) stock in the company is tightly held,but there are some "outsider" stockholders. 
C) stock in the company is very diffusely held,with no individual or group having control over a large block of stock. 
D) managers have profit-sharing schemes as part of their incentive package. 
E) managers focus on maximizing the firm's profits,rather than the firm's market share. 
A) stock in a corporation is held exclusively by a small number of people who control the company's day-to-day operations. 
B) stock in the company is tightly held,but there are some "outsider" stockholders. 
C) stock in the company is very diffusely held,with no individual or group having control over a large block of stock. 
D) managers have profit-sharing schemes as part of their incentive package. 
E) managers focus on maximizing the firm's profits,rather than the firm's market share.

Question 9

Credit histories allow firms to

Accepted Answer

A) identify high-risk borrowers,so they can be eliminated and interest rates kept down for others. 
B) increase the number of credit cards issued,and interest rates go up as a result. 
C) increase the number of credit cards issued,and interest rates go down as a result. 
D) lower the number of credit cards issued,and interest rates go up as a result. 
E) increase market power in the credit card industry,raising interest rates. 
A) identify high-risk borrowers,so they can be eliminated and interest rates kept down for others. 
B) increase the number of credit cards issued,and interest rates go up as a result. 
C) increase the number of credit cards issued,and interest rates go down as a result. 
D) lower the number of credit cards issued,and interest rates go up as a result. 
E) increase market power in the credit card industry,raising interest rates.

Question 10

The "no shirking constraint" (NSC)curve never crosses the supply of labor curve,so

Accepted Answer

A) the market never reaches equilibrium. 
B) there is always full employment in equilibrium. 
C) there is always some unemployment in equilibrium. 
D) the efficiency wage is always lower than the market-clearing wage. 
E) the gap between the NSC curve and the supply of labor curve equals the difference between the efficiency wage and the market-clearing wage. 
A) the market never reaches equilibrium. 
B) there is always full employment in equilibrium. 
C) there is always some unemployment in equilibrium. 
D) the efficiency wage is always lower than the market-clearing wage. 
E) the gap between the NSC curve and the supply of labor curve equals the difference between the efficiency wage and the market-clearing wage.

Question 11

A certain firm can hire two types of workers: Group A workers who have high productivity and Group B workers with low productivity.Group A workers will add $27,500 to the firm's revenues per year,while Group B workers will increase the firm's revenues by $15,000 per year.The firm's managers expect workers to be employed for eight years.The differences in the workers' productivity levels are reflected in their costs per year of education.Each year of education (which includes the psychic costs of study effort)costs an A worker $12,500,while each year costs a B worker $25,000.
a.Under competitive conditions,how much would A and B workers earn?
b.Assuming that the firm is unable to distinguish A from B workers and that it is equally likely that a worker is of either type,what pay scale will the firm offer?
c.Suppose that the firm decides to use education as a market signaling device to distinguish A workers from B workers.What education requirement could the firm set?

Accepted Answer

a. Under competitive conditions workers

Question 12

The process by which sellers send signals to buyers conveying information about product quality is known as:

Accepted Answer

A) asymmetric information. 
B) market signaling. 
C) a lemons problem. 
D) moral hazard. 
A) asymmetric information. 
B) market signaling. 
C) a lemons problem. 
D) moral hazard.

Question 13

Assume that both high and low quality appliances are sold in the used appliance market.If we assume asymmetric information with sellers having more information regarding quality than buyers,which of the following is necessarily true? The

Accepted Answer

A) fraction of high quality appliances will be greater than under perfect knowledge. 
B) fractions of high and low quality appliances will be the same as with perfect information. 
C) fraction of high quality appliances will be less than with perfect information. 
D) none of the above 
A) fraction of high quality appliances will be greater than under perfect knowledge. 
B) fractions of high and low quality appliances will be the same as with perfect information. 
C) fraction of high quality appliances will be less than with perfect information. 
D) none of the above

Question 14

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: MPe(e)= 20 - e.Ms.Moneynickel can sell all the product she stocks for $20.Employees determine their effort level according to the function: e = 10(w -   ),where   is the minimum wage.Currently,the minimum wage is $6.The marginal cost to Ms.Moneynickel of effort is: MC(e)=   .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 the

Question 15

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 16

Which of the following represent examples of adverse selection?

Accepted Answer

A) Unhealthy people are more likely to want health insurance. 
B) Careless drivers purchasing extra auto insurance. 
C) Risk averse individuals choosing to buy extra insurance. 
D) all of the above 
E) A and B only 
A) Unhealthy people are more likely to want health insurance. 
B) Careless drivers purchasing extra auto insurance. 
C) Risk averse individuals choosing to buy extra insurance. 
D) all of the above 
E) A and B only

Question 17

Mr.Barnes operates a power plant in the local market.His marginal revenue of average employee effort level is: MR(e)= 25 - e.The marginal cost of effort to Mr.Barnes is:
MC(e)= w.Employees set their effort level according to: e =   ,where   is the average wage at all other jobs in the local market.Currently,this average is $7.50.If Mr.Barnes pays a wage rate of $7.50,is he maximizing profits? If not,what wage rate should Mr.Barnes pay?

Accepted Answer

If Mr.Barnes sets the wage rate to $7.50

Question 18

You want to add a new room on your house,but you are not familiar with the local building contractors and are not sure who to consider for the job.If you ask your friends for referrals,you are using their past experience as a way to evaluate the __________ of the builders.

Accepted Answer

A) efficiency wages 
B) moral hazard 
C) asymmetric information 
D) reputation 
A) efficiency wages 
B) moral hazard 
C) asymmetric information 
D) reputation

Question 19

Trisha's Fashion Boutique is considering a profit sharing arrangement with her employees.Currently,the employees receive an annual bonus.In a "Boom" market,Trisha can sell all the output she produces for $225 per unit.In a "Bust" market,Trisha can sell all the output she produces for $125 per unit.The probability of a "Boom" market is 75% and the probability of a bust market is 25%.Trisha's total cost function (including bonus payments to employees)is:
TC(Q)= 75Q + 2.5Q2.The marginal cost function is: MC(Q)= 75 + 5Q.The profit sharing plan would pay employees 30% of profits.However,due to greater cost saving initiatives from employees,Trisha's total cost function becomes: TC(Q)= 505Q + 2Q2.The relevant marginal cost function becomes: MC(Q)= 50 + 4Q.Which plan offers Trisha the greatest expected profits for herself? Suppose the employees will only approve a profit sharing plan if they are guaranteed their portion of profits will be at least $400.Will the employees approve of the profit sharing program?

Accepted Answer

The table below displays Trisha's profit

Question 20

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.

Firms that have several plants that produce the same or related products are said to be:

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

Suppose new electronic devices make it easier to monitor the effort levels of workers.What happens to the NSC curve in the efficiency wage model?

The problem of adverse selection in health insurance leads to a situation in which

Explain what the principal-agent problem is,and explain evidence of its existence in hospitals in the United States.

In the insurance market,"moral hazard" refers to the problem that

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

The principal-agent problem of ownership vs.control of the corporation tends to get worse when

Credit histories allow firms to

The "no shirking constraint" (NSC)curve never crosses the supply of labor curve,so

The process by which sellers send signals to buyers conveying information about product quality is known as:

Assume that both high and low quality appliances are sold in the used appliance market.If we assume asymmetric information with sellers having more information regarding quality than buyers,which of the following is necessarily true? The

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

Which of the following represent examples of adverse selection?

You want to add a new room on your house,but you are not familiar with the local building contractors and are not sure who to consider for the job.If you ask your friends for referrals,you are using their past experience as a way to evaluate the __________ of the builders.

When states make car insurance mandatory for all drivers,it

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 1-83

Externalities and Public Goods

Filters

Exam 17: Markets With Asymmetric Information

Firms that have several plants that produce the same or related products are said to be:

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

Suppose new electronic devices make it easier to monitor the effort levels of workers.What happens to the NSC curve in the efficiency wage model?

The problem of adverse selection in health insurance leads to a situation in which

Explain what the principal-agent problem is,and explain evidence of its existence in hospitals in the United States.

In the insurance market,"moral hazard" refers to the problem that

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

The principal-agent problem of ownership vs.control of the corporation tends to get worse when

Credit histories allow firms to

The "no shirking constraint" (NSC)curve never crosses the supply of labor curve,so

The process by which sellers send signals to buyers conveying information about product quality is known as:

Assume that both high and low quality appliances are sold in the used appliance market.If we assume asymmetric information with sellers having more information regarding quality than buyers,which of the following is necessarily true? The

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

Which of the following represent examples of adverse selection?

You want to add a new room on your house,but you are not familiar with the local building contractors and are not sure who to consider for the job.If you ask your friends for referrals,you are using their past experience as a way to evaluate the __________ of the builders.

When states make car insurance mandatory for all drivers,it

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 1-83

Externalities and Public Goods

Filters