Question 1

If a game is a fair bet, then people will be willing to play the game regardless of the payoffs.

Accepted Answer

A) True 
 B)False

Question 2

A diagram of an individual's utility from income will be a line with an increasing slope if the individual is risk-averse.

Accepted Answer

A) True 
 B)False

Question 3

Refer to the data provided in Table 17.3 below to answer the following question(s). The table shows the relationship between income and utility for Terri.
Table 17.3
  
-Refer to Table 17.3. From the table, we can see that Terri is

Accepted Answer

A)  risk-averse. 
B)  risk-loving. 
C)  risk-neutral. 
D)  We cannot determine Jane's attitude toward risk from the table. 
A)  risk-averse. 
B)  risk-loving. 
C)  risk-neutral. 
D)  We cannot determine Jane's attitude toward risk from the table.

Question 4

A person who prefers a certain payoff over an uncertain one with the same expected value is risk-averse.

Accepted Answer

A) True 
 B)False

Question 5

An area of economics that explores how contract or transaction structures can overcome asymmetric information problems is

Accepted Answer

A)  behavioral economics. 
B)  adverse selection. 
C)  econometrics. 
D)  mechanism design. 
A)  behavioral economics. 
B)  adverse selection. 
C)  econometrics. 
D)  mechanism design.

Question 6

With ________, the quality of what is being offered in a transaction matters and is not easily demonstrated.

Accepted Answer

A)  asymmetric information 
B)  adverse selection 
C)  risk aversion 
D)  moral hazard 
A)  asymmetric information 
B)  adverse selection 
C)  risk aversion 
D)  moral hazard

Question 7

Consider the following game. You roll a 6-sided die and each time you roll a 1, you get $50. For all other outcomes you pay $10. The $50 when you "win" and the -$10 when you "lose" are known as

Accepted Answer

A)  payoffs. 
B)  winnings and losings, respectively. 
C)  incentives. 
D)  expected values. 
A)  payoffs. 
B)  winnings and losings, respectively. 
C)  incentives. 
D)  expected values.

Question 8

Mechanism design is used to

Accepted Answer

A)  align the interests of two parties in a transaction. 
B)  give individuals the incentive to reveal the truth about themselves. 
C)  correct inefficiencies associated with asymmetric information. 
D)  All of the above are correct. 
A)  align the interests of two parties in a transaction. 
B)  give individuals the incentive to reveal the truth about themselves. 
C)  correct inefficiencies associated with asymmetric information. 
D)  All of the above are correct.

Question 9

Consider the following game. You roll a six-sided die and each time you roll a 1, you get $50. For all other outcomes you pay $10. Since the expected value of this game is $0, the game is called a(n)

Accepted Answer

A)  gamble. 
B)  fair bet. 
C)  even game. 
D)  zero sum game. 
A)  gamble. 
B)  fair bet. 
C)  even game. 
D)  zero sum game.

Question 10

Refer to the information provided in Figure 17.1 below to answer the question(s) that follow.   Figure 17.1
-Refer to Figure 17.1. John has two job offers when he graduates from college. John views the offers as identical, except for the salary terms. The first offer is at a fixed annual salary of $50,000. The second offer is at a fixed salary of $20,000 plus a possible bonus of $60,000. John believes that he has a 50-50 chance of earning the bonus. What is John's expected utility for each job offer?

Accepted Answer

A)  expected utility of 200 for the first offer and expected utility of 218 for the second offer 
B)  expected utility of 200 for the first offer and expected utility of 110 for the second offer 
C)  expected utility of 200 for the first offer and expected utility of 164 for the second offer 
D)  expected utility of 100 for the first offer and expected utility of 164 for the second offer 
A)  expected utility of 200 for the first offer and expected utility of 218 for the second offer 
B)  expected utility of 200 for the first offer and expected utility of 110 for the second offer 
C)  expected utility of 200 for the first offer and expected utility of 164 for the second offer 
D)  expected utility of 100 for the first offer and expected utility of 164 for the second offer

Question 11

As a result of adverse selection problems in the health insurance market, it is likely that over time

Accepted Answer

A)  fewer healthy people will be insured. 
B)  fewer unhealthy people will be insured. 
C)  fewer healthy and unhealthy people will be insured. 
D)  more healthy people will be insured. 
A)  fewer healthy people will be insured. 
B)  fewer unhealthy people will be insured. 
C)  fewer healthy and unhealthy people will be insured. 
D)  more healthy people will be insured.

Question 12

Consider the following game. You roll a six-sided die and each time you roll a 1, you get $50. For all other outcomes you pay $10. The expected value of the game is

Accepted Answer

A)  -$10. 
B)  $0. 
C)  $10. 
D)  $50. 
A)  -$10. 
B)  $0. 
C)  $10. 
D)  $50.

Exam 17: Uncertainty and Asymmetric Information

If a game is a fair bet, then people will be willing to play the game regardless of the payoffs.

A diagram of an individual's utility from income will be a line with an increasing slope if the individual is risk-averse.

Refer to the data provided in Table 17.3 below to answer the following question(s). The table shows the relationship between income and utility for Terri. Table 17.3 -Refer to Table 17.3. From the table, we can see that Terri is

A person who prefers a certain payoff over an uncertain one with the same expected value is risk-averse.

An area of economics that explores how contract or transaction structures can overcome asymmetric information problems is

With ________, the quality of what is being offered in a transaction matters and is not easily demonstrated.

Consider the following game. You roll a 6-sided die and each time you roll a 1, you get $50. For all other outcomes you pay $10. The $50 when you "win" and the -$10 when you "lose" are known as

Mechanism design is used to

Consider the following game. You roll a six-sided die and each time you roll a 1, you get $50. For all other outcomes you pay $10. Since the expected value of this game is $0, the game is called a(n)

As a result of adverse selection problems in the health insurance market, it is likely that over time

Consider the following game. You roll a six-sided die and each time you roll a 1, you get $50. For all other outcomes you pay $10. The expected value of the game is

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: The Labor and Land Markets

Input Demand: The Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Common Resources

Income Distribution and Poverty

Public Finance: The Economics of Taxation

Introduction to Macroeconomics

Measuring National Output and National Income

Unemployment, Inflation, and Long-Run Growth

Aggregate Expenditure and Equilibrium Output

The Government and Fiscal Policy

Money, the Federal Reserve, and the Interest Rate

The Determination of Aggregate Output, the Price Level, and the Interest Rate

Policy Effects and Cost Shocks in the Asad Model

The Labor Market in the Macroeconomy

Financial Crises, Stabilization, and Deficits

Household and Firm Behavior in the Macroeconomy: a Further Look

Long-Run Growth

Alternative Views in Macroeconomics

International Trade, Comparative Advantage, and Protectionism

Open-Economy Macroeconomics: the Balance of Payments and Exchange Rates

Economic Growth in Developing Economies

Critical Thinking About Research

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