Question 1

Some software firms require that applicants have passed certain standardized certification tests before being hired. This policy is necessary when

Accepted Answer

A) cheap talk does not provide a credible signal. 
B) cheap talk does provide a credible signal. 
C) the interests of the firm and the applicant converge. 
D) the applicant is honest about her abilities. 
A) cheap talk does not provide a credible signal. 
B) cheap talk does provide a credible signal. 
C) the interests of the firm and the applicant converge. 
D) the applicant is honest about her abilities.

Question 2

Government mandated safety standards within firms

Accepted Answer

A) will always decrease efficiency. 
B) can increase efficiency by avoiding a prisoner's dilemma outcome. 
C) are unnecessary because of asymmetric information. 
D) will create unfair competition among firms. 
A) will always decrease efficiency. 
B) can increase efficiency by avoiding a prisoner's dilemma outcome. 
C) are unnecessary because of asymmetric information. 
D) will create unfair competition among firms.

Question 3

Adverse selection occurs when an agreement encourages undesirable behavior.

Accepted Answer

A) True 
 B)False

Question 4

Selling the same product under different brand names allows a firm to price discriminate as long as

Accepted Answer

A) customers know the products are identical. 
B) customers do not know the products are identical. 
C) the products really are not the same. 
D) the firm lets customers know that the products are identical. 
A) customers know the products are identical. 
B) customers do not know the products are identical. 
C) the products really are not the same. 
D) the firm lets customers know that the products are identical.

Question 5

The wage of a known high-quality worker, wh, is $10,000. The wage for a known low-quality worker, wl, is $4,000. The share of the work force that is of high quality, s, is 0.5. For what value of the cost, c, of a college education that serves only as a signal of a high-quality worker does a pooling equilibrium exist?

Accepted Answer

A) c > $3,000 B) c < $3,000 C) c < $1,000 D) c = $2,500 A) c > $3,000 B) c < $3,000 C) c < $1,000 D) c = $2,500

Question 6

What could be a potential explanation for a firm selling virtually identical products under different brands?

Accepted Answer

A) Consumers are well informed about the quality of the products. 
B) Consumers believe that the products' quality is similar and thus firms are able to price discriminate. 
C) Consumers always favor private-label brands. 
D) Consumers believe that the products' quality differs and thus firms are able to price discriminate. 
A) Consumers are well informed about the quality of the products. 
B) Consumers believe that the products' quality is similar and thus firms are able to price discriminate. 
C) Consumers always favor private-label brands. 
D) Consumers believe that the products' quality differs and thus firms are able to price discriminate.

Question 7

A necessary condition for a separating equilibrium when workers can use education as a signal of their ability is

Accepted Answer

A) the high-ability wage is larger than the sum of the degree cost plus the low-ability wage. 
B) the cost of a degree is larger than the low-skill wage. 
C) the high-ability wage is smaller than the low-ability wage. 
D) the high-skill wage is equal to the cost of a degree. 
A) the high-ability wage is larger than the sum of the degree cost plus the low-ability wage. 
B) the cost of a degree is larger than the low-skill wage. 
C) the high-ability wage is smaller than the low-ability wage. 
D) the high-skill wage is equal to the cost of a degree.

Question 8

Life insurance companies often give applicants a physical examination to prevent

Accepted Answer

A) the person from dying before obtaining the policy. 
B) signaling. 
C) adverse selection. 
D) profit maximization. 
A) the person from dying before obtaining the policy. 
B) signaling. 
C) adverse selection. 
D) profit maximization.

Question 9

-The market for used cars is shown in the above figure. Ten percent (10%)of all cars are lemons. A mechanic is offering to inspect a car for sale and certify that a car is not a lemon. If car sellers are risk neutral, what is the highest price that a car seller would pay for such a service? Who would buy this service?

Accepted Answer

Lemon owners would not buy this service

Question 10

Opportunism may occur when

Accepted Answer

A) both parties have limited information. 
B) both parties have full information. 
C) one party has information the other does not. 
D) All of the above. 
A) both parties have limited information. 
B) both parties have full information. 
C) one party has information the other does not. 
D) All of the above.

Question 11

-The market for used cars is shown in the above figure. Buyers cannot tell whether any given car is a lemon. Forty percent (40%)of all cars are lemons. Which of the following statements is TRUE?

Accepted Answer

A) All of the cars will be sold at $1,600. 
B) No cars will be sold. 
C) Only lemons will be sold at $1,600. 
D) Only lemons will be sold at $1,000. 
A) All of the cars will be sold at $1,600. 
B) No cars will be sold. 
C) Only lemons will be sold at $1,600. 
D) Only lemons will be sold at $1,000.

Question 12

The lemons problem is due to

Accepted Answer

A) asymmetric information. 
B) moral hazard. 
C) hidden actions. 
D) symmetric information. 
A) asymmetric information. 
B) moral hazard. 
C) hidden actions. 
D) symmetric information.

Question 13

In a labor-market separating equilibrium with high-skill and low-skill workers and where a costly educational degree is used solely as a signal device, government can increase total social welfare by

Accepted Answer

A) subsidizing school for low-skill workers. 
B) subsidizing school for all workers. 
C) eliminating schooling, i.e., banning wasteful signaling. 
D) subsidizing school for high-skill workers. 
A) subsidizing school for low-skill workers. 
B) subsidizing school for all workers. 
C) eliminating schooling, i.e., banning wasteful signaling. 
D) subsidizing school for high-skill workers.

Question 14

The Internet has made it possible to compare lots of prices without incurring a lot of cost. If Internet access is unequally distributed throughout the population one would expect

Accepted Answer

A) consumers with Internet access to pay a higher price. 
B) consumers without Internet access to pay a lower price. 
C) price discrimination against consumers without Internet access. 
D) firms to charge the same price to all consumers. 
A) consumers with Internet access to pay a higher price. 
B) consumers without Internet access to pay a lower price. 
C) price discrimination against consumers without Internet access. 
D) firms to charge the same price to all consumers.

Question 15

If you sell your DVD player on eBay, you will be better informed about the quality of the product than any potential buyer. This is called

Accepted Answer

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

Question 16

Signals can help prevent adverse selection as long as a false signal is costly to the person sending it.

Accepted Answer

A) True 
 B)False

Question 17

With asymmetric information among consumers and positive search costs, a firm may

Accepted Answer

A) raise its price above the monopoly price. 
B) price at the monopoly level. 
C) price at the full information competitive level. 
D) None of the above. 
A) raise its price above the monopoly price. 
B) price at the monopoly level. 
C) price at the full information competitive level. 
D) None of the above.

Question 18

If diplomas work efficiently in signaling productive capabilities to employers, the resulting equilibrium

Accepted Answer

A) will be a separating equilibrium. 
B) will be a pooling equilibrium. 
C) will always be inefficient. 
D) will never be efficient. 
A) will be a separating equilibrium. 
B) will be a pooling equilibrium. 
C) will always be inefficient. 
D) will never be efficient.

Question 19

Suppose that everyone is risk neutral and buyers cannot identify the lemons. The expected value of a used car is $8,000. No good cars will be sold in this market

Accepted Answer

A) unless the sellers of good cars place a value greater than $8,000 on their cars. 
B) unless the sellers of lemons place a value greater than $8,000 on their cars. 
C) unless sellers engage in cheap talk. 
D) unless the sellers of good cars place a value lesser or equal to $8,000 on their cars. 
A) unless the sellers of good cars place a value greater than $8,000 on their cars. 
B) unless the sellers of lemons place a value greater than $8,000 on their cars. 
C) unless sellers engage in cheap talk. 
D) unless the sellers of good cars place a value lesser or equal to $8,000 on their cars.

Question 20

Competitive firms are able to set price above marginal cost when

Accepted Answer

A) the markup is less than the cost of going to another store. 
B) the markup is greater than the cost of going to another store. 
C) all consumers have full information. 
D) consumers know what other stores are charging. 
A) the markup is less than the cost of going to another store. 
B) the markup is greater than the cost of going to another store. 
C) all consumers have full information. 
D) consumers know what other stores are charging.

Some software firms require that applicants have passed certain standardized certification tests before being hired. This policy is necessary when

Government mandated safety standards within firms

Adverse selection occurs when an agreement encourages undesirable behavior.

Selling the same product under different brand names allows a firm to price discriminate as long as

What could be a potential explanation for a firm selling virtually identical products under different brands?

A necessary condition for a separating equilibrium when workers can use education as a signal of their ability is

Life insurance companies often give applicants a physical examination to prevent

Opportunism may occur when

-The market for used cars is shown in the above figure. Buyers cannot tell whether any given car is a lemon. Forty percent (40%)of all cars are lemons. Which of the following statements is TRUE?

The lemons problem is due to

In a labor-market separating equilibrium with high-skill and low-skill workers and where a costly educational degree is used solely as a signal device, government can increase total social welfare by

The Internet has made it possible to compare lots of prices without incurring a lot of cost. If Internet access is unequally distributed throughout the population one would expect

If you sell your DVD player on eBay, you will be better informed about the quality of the product than any potential buyer. This is called

Signals can help prevent adverse selection as long as a false signal is costly to the person sending it.

With asymmetric information among consumers and positive search costs, a firm may

If diplomas work efficiently in signaling productive capabilities to employers, the resulting equilibrium

Suppose that everyone is risk neutral and buyers cannot identify the lemons. The expected value of a used car is $8,000. No good cars will be sold in this market

Competitive firms are able to set price above marginal cost when

Introduction

Supply and Demand

Applying the Supply-And-Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Contracts and Moral Hazards

Filters

Exam 19: Asymmetric Information

Some software firms require that applicants have passed certain standardized certification tests before being hired. This policy is necessary when

Government mandated safety standards within firms

Adverse selection occurs when an agreement encourages undesirable behavior.

Selling the same product under different brand names allows a firm to price discriminate as long as

What could be a potential explanation for a firm selling virtually identical products under different brands?

A necessary condition for a separating equilibrium when workers can use education as a signal of their ability is

Life insurance companies often give applicants a physical examination to prevent

Opportunism may occur when

-The market for used cars is shown in the above figure. Buyers cannot tell whether any given car is a lemon. Forty percent (40%)of all cars are lemons. Which of the following statements is TRUE?

The lemons problem is due to

In a labor-market separating equilibrium with high-skill and low-skill workers and where a costly educational degree is used solely as a signal device, government can increase total social welfare by

The Internet has made it possible to compare lots of prices without incurring a lot of cost. If Internet access is unequally distributed throughout the population one would expect

If you sell your DVD player on eBay, you will be better informed about the quality of the product than any potential buyer. This is called

Signals can help prevent adverse selection as long as a false signal is costly to the person sending it.

With asymmetric information among consumers and positive search costs, a firm may

If diplomas work efficiently in signaling productive capabilities to employers, the resulting equilibrium

Suppose that everyone is risk neutral and buyers cannot identify the lemons. The expected value of a used car is $8,000. No good cars will be sold in this market

Competitive firms are able to set price above marginal cost when

Introduction

Supply and Demand

Applying the Supply-And-Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Contracts and Moral Hazards

Filters