Question 1

Workers do not know the safety records at individual firms; they only know industry averages. As a result,

Accepted Answer

A) each firm tries to outdo each other in making safety improvements. 
B) each firm has the incentive to be the safest in its industry. 
C) the equilibrium level of safety is less than optimal. 
D) the optimal level of safety is achieved. 
A) each firm tries to outdo each other in making safety improvements. 
B) each firm has the incentive to be the safest in its industry. 
C) the equilibrium level of safety is less than optimal. 
D) the optimal level of safety is achieved.

Question 2

For much of its history, General Motors was characterized by having versions of the same car with different nameplates, e.g., Chevrolet vs. Cadillac. This business model has seemed less successful in recent years. What might explain this?

Accepted Answer

A) Consumers have more information concerning costs and quality. 
B) Consumers have more information concerning costs but not quality. 
C) Sellers have more information concerning costs but consumers have more information about quality. 
D) Consumers have less information concerning costs and quality. 
A) Consumers have more information concerning costs and quality. 
B) Consumers have more information concerning costs but not quality. 
C) Sellers have more information concerning costs but consumers have more information about quality. 
D) Consumers have less information concerning costs and quality.

Question 3

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, we can say that

Accepted Answer

A) education is socially inefficient because it is costly and provides no useful skills to the worker. 
B) education is socially efficient. 
C) education is privately inefficient for high-skill workers. 
D) education is privately useful for low-skill workers only. 
A) education is socially inefficient because it is costly and provides no useful skills to the worker. 
B) education is socially efficient. 
C) education is privately inefficient for high-skill workers. 
D) education is privately useful for low-skill workers only.

Question 4

-The market for used cars is shown in the above figure. Buyers cannot tell whether any given car is a lemon. What is the maximum share of lemons that will still allow for all cars being sold?

Accepted Answer

A) 12% 
B) 16% 
C) 20% 
D) 23% 
A) 12% 
B) 16% 
C) 20% 
D) 23%

Question 5

The requirement that all drivers must carry auto insurance reduces

Accepted Answer

A) moral hazard. 
B) the effectiveness of signaling. 
C) adverse selection. 
D) the chance of auto accidents. 
A) moral hazard. 
B) the effectiveness of signaling. 
C) adverse selection. 
D) the chance of auto accidents.

Question 6

Assume health insurance is provided universally by the government. This would

Accepted Answer

A) eliminate the problems of adverse selection. 
B) result in adverse selection. 
C) eliminate the problems of moral hazard. 
D) All of the above. 
A) eliminate the problems of adverse selection. 
B) result in adverse selection. 
C) eliminate the problems of moral hazard. 
D) All of the above.

Question 7

Assume health insurance is provided universally by the government. This would

Accepted Answer

A) force every taxpayer to bear the costs of adverse selection. 
B) force every taxpayer to bear the costs of moral hazard. 
C) force the government to deal with adverse selection problems. 
D) force foreign governments to deal with moral hazard problems. 
A) force every taxpayer to bear the costs of adverse selection. 
B) force every taxpayer to bear the costs of moral hazard. 
C) force the government to deal with adverse selection problems. 
D) force foreign governments to deal with moral hazard problems.

Question 8

-Joe wants to achieve the highest position possible with the XYZ Co. During the interview, he tells them he is capable of performing many difficult tasks. The company feels there is a 10% chance he is lying. Given the payoff matrix in the above figure, what job level will the company offer to Joe? Why?

Accepted Answer

The expected payoff to the firm of givin

Question 9

The Internet has made it possible to compare lots of prices without incurring a lot of cost. This

Accepted Answer

A) has given firms added market power to price discriminate. 
B) has significantly reduced search cost and made markets more competitive. 
C) has enabled firms to charge higher prices to consumers with computers. 
D) has only affected technology markets. 
A) has given firms added market power to price discriminate. 
B) has significantly reduced search cost and made markets more competitive. 
C) has enabled firms to charge higher prices to consumers with computers. 
D) has only affected technology markets.

Question 10

If the market interest rate is 5% and a bank advertises loans at 12%, the bank will receive

Accepted Answer

A) no applications. 
B) applications from mostly low-risk borrowers. 
C) applications from mostly high-risk borrowers. 
D) a moral hazard. 
A) no applications. 
B) applications from mostly low-risk borrowers. 
C) applications from mostly high-risk borrowers. 
D) a moral hazard.

Question 11

The WWQX Co. sells shirts. Shirts with the company label on the tag are perceived to be of higher quality than shirts with the store's label. Yet, shirts are of identical quality regardless of the label. The demand for perceived high-quality shirts is ph = 80 - qh. The demand for perceived low-quality shirts is pl = 19 + ph - ql. The firm can produce shirts at TC = 2qh + 2ql. What is WWQX Co. total profit?

Accepted Answer

A) $2,362 
B) $1,521 
C) $2,518 
D) $1,875 
A) $2,362 
B) $1,521 
C) $2,518 
D) $1,875

Question 12

The cost, c, of a college education that serves only as a signal of a high-quality worker is $20,000. The wage of a known high-quality worker, wh, is $75,000. The wage for a known low-quality worker, wl, is $50,000. For what value of the share of the work force that is of high quality, t, is a pooling equilibrium possible?

Accepted Answer

The high-quality workers will not go to

Question 13

In a labor-market pooling equilibrium with high-skill and low-skill workers and where a costly educational degree is used as a signaling device,

Accepted Answer

A) the high-skill workers' wage is larger than the low-skill workers' wage. 
B) the low-skill workers' wage is zero. 
C) the high- and low-skill workers receive the same wage. 
D) the high-skill workers' wage is equal to the low-skill workers' wage plus the cost of obtaining a degree. 
A) the high-skill workers' wage is larger than the low-skill workers' wage. 
B) the low-skill workers' wage is zero. 
C) the high- and low-skill workers receive the same wage. 
D) the high-skill workers' wage is equal to the low-skill workers' wage plus the cost of obtaining a degree.

Question 14

Many people tend to buy multiple cars from the same manufacturer because

Accepted Answer

A) doing so reduces the asymmetric information problem; consumers have better knowledge of quality. 
B) doing so reduces the asymmetric information problem; consumers have better knowledge of prices. 
C) doing so doesn't change the asymmetric information problem but consumers have more information. 
D) doing so increases the consumers brand loyalty. 
A) doing so reduces the asymmetric information problem; consumers have better knowledge of quality. 
B) doing so reduces the asymmetric information problem; consumers have better knowledge of prices. 
C) doing so doesn't change the asymmetric information problem but consumers have more information. 
D) doing so increases the consumers brand loyalty.

Question 15

When consumers have asymmetric information and when search costs and the number of firms are large, a single-price equilibrium in a competitive market

Accepted Answer

A) is impossible. 
B) occurs when price equals average cost. 
C) occurs when price equals marginal cost plus the search cost. 
D) occurs when the price is the price a monopoly would set. 
A) is impossible. 
B) occurs when price equals average cost. 
C) occurs when price equals marginal cost plus the search cost. 
D) occurs when the price is the price a monopoly would set.

Question 16

In the automobile insurance market, adverse selection occurs when

Accepted Answer

A) drivers with greater risks buy a policy with large deductibles. 
B) drivers with greater risks buy a policy with no deductibles. 
C) uninsured drivers drive recklessly. 
D) insured drivers drive recklessly. 
A) drivers with greater risks buy a policy with large deductibles. 
B) drivers with greater risks buy a policy with no deductibles. 
C) uninsured drivers drive recklessly. 
D) insured drivers drive recklessly.

Question 17

eBay has a seller reputation system to provide

Accepted Answer

A) consumers with a signal concerning seller quality. 
B) sellers a chance to signal other sellers concerning their quality. 
C) a reduction in monopoly power. 
D) improvements in investor relations. 
A) consumers with a signal concerning seller quality. 
B) sellers a chance to signal other sellers concerning their quality. 
C) a reduction in monopoly power. 
D) improvements in investor relations.

Question 18

If low-quality workers are unable to obtain a college degree, then a separating equilibrium can occur if

Accepted Answer

A) the cost of obtaining a degree is less than the wage premium paid to those who have obtained the degree. 
B) the cost of obtaining a degree is greater than the wage premium paid to those who have obtained the degree. 
C) the cost of obtaining a degree is zero. 
D) the wage premium paid to those who have obtained the degree is positive. 
A) the cost of obtaining a degree is less than the wage premium paid to those who have obtained the degree. 
B) the cost of obtaining a degree is greater than the wage premium paid to those who have obtained the degree. 
C) the cost of obtaining a degree is zero. 
D) the wage premium paid to those who have obtained the degree is positive.

Question 19

With asymmetric information firms might be reluctant to improve the quality of their products because

Accepted Answer

A) it costs them more to produce the better quality product. 
B) they are not able to completely capture the benefits of the improvement. 
C) consumers do not value the better product. 
D) consumers are better informed about the product and value the new product less. 
A) it costs them more to produce the better quality product. 
B) they are not able to completely capture the benefits of the improvement. 
C) consumers do not value the better product. 
D) consumers are better informed about the product and value the new product less.

Question 20

-The market for used cars is shown in the above figure. Buyers cannot tell whether any given car is a lemon. Ten percent (10%)of all cars are lemons. Which of the following statements is TRUE?

Accepted Answer

A) All of the cars will be sold. 
B) No cars will be sold. 
C) Only lemons will be sold. 
D) Only good cars will be sold. 
A) All of the cars will be sold. 
B) No cars will be sold. 
C) Only lemons will be sold. 
D) Only good cars will be sold.

Workers do not know the safety records at individual firms; they only know industry averages. As a result,

For much of its history, General Motors was characterized by having versions of the same car with different nameplates, e.g., Chevrolet vs. Cadillac. This business model has seemed less successful in recent years. What might explain this?

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, we can say that

-The market for used cars is shown in the above figure. Buyers cannot tell whether any given car is a lemon. What is the maximum share of lemons that will still allow for all cars being sold?

The requirement that all drivers must carry auto insurance reduces

Assume health insurance is provided universally by the government. This would

Assume health insurance is provided universally by the government. This would

The Internet has made it possible to compare lots of prices without incurring a lot of cost. This

If the market interest rate is 5% and a bank advertises loans at 12%, the bank will receive

In a labor-market pooling equilibrium with high-skill and low-skill workers and where a costly educational degree is used as a signaling device,

Many people tend to buy multiple cars from the same manufacturer because

When consumers have asymmetric information and when search costs and the number of firms are large, a single-price equilibrium in a competitive market

In the automobile insurance market, adverse selection occurs when

eBay has a seller reputation system to provide

If low-quality workers are unable to obtain a college degree, then a separating equilibrium can occur if

With asymmetric information firms might be reluctant to improve the quality of their products because

-The market for used cars is shown in the above figure. Buyers cannot tell whether any given car is a lemon. Ten percent (10%)of all cars are lemons. Which of the following statements is TRUE?

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

Workers do not know the safety records at individual firms; they only know industry averages. As a result,

For much of its history, General Motors was characterized by having versions of the same car with different nameplates, e.g., Chevrolet vs. Cadillac. This business model has seemed less successful in recent years. What might explain this?

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, we can say that

-The market for used cars is shown in the above figure. Buyers cannot tell whether any given car is a lemon. What is the maximum share of lemons that will still allow for all cars being sold?

The requirement that all drivers must carry auto insurance reduces

Assume health insurance is provided universally by the government. This would

Assume health insurance is provided universally by the government. This would

The Internet has made it possible to compare lots of prices without incurring a lot of cost. This

If the market interest rate is 5% and a bank advertises loans at 12%, the bank will receive

In a labor-market pooling equilibrium with high-skill and low-skill workers and where a costly educational degree is used as a signaling device,

Many people tend to buy multiple cars from the same manufacturer because

When consumers have asymmetric information and when search costs and the number of firms are large, a single-price equilibrium in a competitive market

In the automobile insurance market, adverse selection occurs when

eBay has a seller reputation system to provide

If low-quality workers are unable to obtain a college degree, then a separating equilibrium can occur if

With asymmetric information firms might be reluctant to improve the quality of their products because

-The market for used cars is shown in the above figure. Buyers cannot tell whether any given car is a lemon. Ten percent (10%)of all cars are lemons. Which of the following statements is TRUE?

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