Question 1

People _____ have _____ when making choices.

Accepted Answer

A) often; good enough information 
B) always; enough information 
C) always; access to complete information 
D) never; access to complete information 
A) often; good enough information 
B) always; enough information 
C) always; access to complete information 
D) never; access to complete information

Question 2

Because buyers lack information about used cars for sale:

Accepted Answer

A) buyers will often offer less than what a car is worth, since there is a chance the car is a lemon. 
B) sellers of well-functioning used cars will be more likely to enter the market. 
C) the market will eventually become saturated with high-quality cars. 
D) All of these are true. 
A) buyers will often offer less than what a car is worth, since there is a chance the car is a lemon. 
B) sellers of well-functioning used cars will be more likely to enter the market. 
C) the market will eventually become saturated with high-quality cars. 
D) All of these are true.

Question 3

Both screening and signaling:

Accepted Answer

A) correct inefficiency in the market. 
B) allow more transactions to take place that are valuable to buyers and sellers. 
C) can increase surplus gained in a market. 
D) All of these are true. 
A) correct inefficiency in the market. 
B) allow more transactions to take place that are valuable to buyers and sellers. 
C) can increase surplus gained in a market. 
D) All of these are true.

Question 4

The government can help solve an information asymmetry problem by:

Accepted Answer

A) making transactions without complete information illegal. 
B) providing the missing information to the less informed party. 
C) discouraging the more informed party from using the imbalance to their advantage. 
D) All of these are true. 
A) making transactions without complete information illegal. 
B) providing the missing information to the less informed party. 
C) discouraging the more informed party from using the imbalance to their advantage. 
D) All of these are true.

Question 5

Which of the following exemplifies statistical discrimination in health insurance?Insurance providers tend to charge lower premiums to young adults, because young adults cost less on average to insure.People with higher-than-average health costs are more likely to seek out health insurance.Doctors tend to prescribe more tests and treatments to patients who are insured over patients who are uninsured.

Accepted Answer

A) III only 
B) II and III only 
C) I only 
D) I, II, and III 
A) III only 
B) II and III only 
C) I only 
D) I, II, and III

Question 6

Statistical discrimination using gender and age:

Accepted Answer

A) is legal in the insurance market, but not the job market. 
B) is legal in the job market, but not the insurance market. 
C) is legal in any market. 
D) is illegal in any market. 
A) is legal in the insurance market, but not the job market. 
B) is legal in the job market, but not the insurance market. 
C) is legal in any market. 
D) is illegal in any market.

Question 7

Candidates who are trying out for the football team may be required to run a lap around the track. This is an example of:

Accepted Answer

A) signaling. 
B) screening. 
C) strength building. 
D) training. 
A) signaling. 
B) screening. 
C) strength building. 
D) training.

Question 8

Completing a college degree signals to employers that you are:

Accepted Answer

A) intelligent. 
B) hardworking. 
C) able to complete assignments. 
D) All of these are signals one gives with a college degree. 
A) intelligent. 
B) hardworking. 
C) able to complete assignments. 
D) All of these are signals one gives with a college degree.

Question 9

Screening is when someone takes action to:

Accepted Answer

A) reveal one's own private information. 
B) find out the opportunity cost of acquiring more information. 
C) reveal private information about someone else. 
D) None of these are true. 
A) reveal one's own private information. 
B) find out the opportunity cost of acquiring more information. 
C) reveal private information about someone else. 
D) None of these are true.

Question 10

The nutritional information now available at many fast food restaurants is an example of the government:

Accepted Answer

A) attempting to control what people eat. 
B) requiring more informed parties to reveal missing information. 
C) screening out unhealthy food for consumers. 
D) requiring restaurants to signal whether food is healthy or not. 
A) attempting to control what people eat. 
B) requiring more informed parties to reveal missing information. 
C) screening out unhealthy food for consumers. 
D) requiring restaurants to signal whether food is healthy or not.

Question 11

Auto insurance providers charge higher premiums to young male drivers, because they tend to be involved in more car accidents than other populations. This is an example of:

Accepted Answer

A) adverse selection. 
B) signaling. 
C) moral hazard. 
D) statistical discrimination. 
A) adverse selection. 
B) signaling. 
C) moral hazard. 
D) statistical discrimination.

Question 12

Information asymmetry becomes a problem when:

Accepted Answer

A) a buyer and seller have aligned incentives. 
B) a buyer and seller have opposing incentives. 
C) a market is highly efficient. 
D) a market is highly inefficient. 
A) a buyer and seller have aligned incentives. 
B) a buyer and seller have opposing incentives. 
C) a market is highly efficient. 
D) a market is highly inefficient.

Question 13

Because the seller of a used car has more information than the buyer, the problem of _____ occurs.

Accepted Answer

A) moral hazard 
B) information overload 
C) adverse selection 
D) bargaining imbalance 
A) moral hazard 
B) information overload 
C) adverse selection 
D) bargaining imbalance

Question 14

Suppose there is a used car market with 1,000 cars for sale. Buyers know that 500 of the used cars are of poor quality and are worth only $500, while the other 500 used cars are of good quality and are worth $1,500. However, buyers do not know which individual cars are of poor quality or good quality. The seller of a car knows the worth of the car. Which of the following statements is true?In equilibrium, only poor quality cars will be sold.The asymmetric information in this market will cause adverse selection.The equilibrium price of a used car will be $500.

Accepted Answer

A) I only 
B) I and III only 
C) II and III only 
D) I, II, and III 
A) I only 
B) I and III only 
C) II and III only 
D) I, II, and III

Question 15

Statistical discrimination:

Accepted Answer

A) can limit individuals' opportunities simply because they belong to a certain group. 
B) can be a rational response to information asymmetry. 
C) is not always a legal solution to information asymmetry. 
D) All of these are true. 
A) can limit individuals' opportunities simply because they belong to a certain group. 
B) can be a rational response to information asymmetry. 
C) is not always a legal solution to information asymmetry. 
D) All of these are true.

Question 16

A college requiring applicants to submit their high school transcripts is an example of:

Accepted Answer

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

Question 17

Moral hazard:

Accepted Answer

A) is a normative judgement about the moral choices made by economic agents. 
B) is about actions and occurs after parties have voluntarily entered into an agreement. 
C) is always present when adverse selection arises. 
D) All of these statements are true. 
A) is a normative judgement about the moral choices made by economic agents. 
B) is about actions and occurs after parties have voluntarily entered into an agreement. 
C) is always present when adverse selection arises. 
D) All of these statements are true.

Question 18

User-feedback scores on eBay are an example of:

Accepted Answer

A) screening. 
B) statistical discrimination. 
C) building a reputation. 
D) reducing shirking. 
A) screening. 
B) statistical discrimination. 
C) building a reputation. 
D) reducing shirking.

Question 19

People with auto insurance tend to drive less carefully. Economists use this as an example of:

Accepted Answer

A) adverse selection. 
B) moral hazard. 
C) asymmetric selection. 
D) information optimization. 
A) adverse selection. 
B) moral hazard. 
C) asymmetric selection. 
D) information optimization.

Question 20

Problems in a market are most likely to arise if:

Accepted Answer

A) all parties have complete information. 
B) all parties have good enough information to make acceptable choices. 
C) one party involved in a transaction knows more than another party. 
D) all parties involved in a transaction lack the same information. 
A) all parties have complete information. 
B) all parties have good enough information to make acceptable choices. 
C) one party involved in a transaction knows more than another party. 
D) all parties involved in a transaction lack the same information.

Exam 10: Information

People _____ have _____ when making choices.

Because buyers lack information about used cars for sale:

Both screening and signaling:

The government can help solve an information asymmetry problem by:

Statistical discrimination using gender and age:

Candidates who are trying out for the football team may be required to run a lap around the track. This is an example of:

Completing a college degree signals to employers that you are:

Screening is when someone takes action to:

The nutritional information now available at many fast food restaurants is an example of the government:

Auto insurance providers charge higher premiums to young male drivers, because they tend to be involved in more car accidents than other populations. This is an example of:

Information asymmetry becomes a problem when:

Because the seller of a used car has more information than the buyer, the problem of _____ occurs.

Statistical discrimination:

A college requiring applicants to submit their high school transcripts is an example of:

Moral hazard:

User-feedback scores on eBay are an example of:

People with auto insurance tend to drive less carefully. Economists use this as an example of:

Problems in a market are most likely to arise if:

Economics and Life

Specialization and Exchange

Markets

Elasticity

Efficiency

Government Intervention

Consumer Behavior

Behavioral Economics: a Closer Look at Decision Making

Game Theory and Strategic Thinking

Time and Uncertainty

The Costs of Production

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

The Facts of Production

International Trade

Externalities

Public Goods and Common Resources

Taxation and the Public Budget

Poverty, Inequality, and Discrimination

Political Choices

Public Policy and Choice Architecture

Filters

People _ have _ when making choices.