Question 1

-The above figure shows the payoff to two firms in an industry deciding to make an investment in worker safety. The dominant strategy for each firm

Accepted Answer

A) is to do the opposite of the other firm. 
B) is to make the investment. 
C) is to not make the investment. 
D) does not exist. 
A) is to do the opposite of the other firm. 
B) is to make the investment. 
C) is to not make the investment. 
D) does not exist.

Question 2

A person who starts practicing poisonous snake charming after signing a contract with a health insurance company is an example of

Accepted Answer

A) moral hazard. 
B) adverse selection. 
C) signaling. 
D) screening. 
A) moral hazard. 
B) adverse selection. 
C) signaling. 
D) screening.

Question 3

A downtown diner daily serving the same business people will be more likely to serve a tasty lunch than a snack bar at a tourist attraction.

Accepted Answer

A) True 
 B)False

Question 4

-The market for used cars is shown in the above figure. Buyers cannot tell whether any given car is a lemon. For all cars offered for sale to be sold, the percent of all cars that are lemons is θ. What happens to θ if car buyers incur a $100 transaction cost when buying a used car?

Accepted Answer

The sellers of good cars have a reservat

Question 5

How can a warranty at the seller's expense signal that a product is of high quality?

Accepted Answer

If the product is of low quali

Question 6

-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. 
B) No cars will be sold. 
C) Only lemons will be sold. 
D) Ten percent of the used cars sold will be lemons. 
A) All of the cars will be sold. 
B) No cars will be sold. 
C) Only lemons will be sold. 
D) Ten percent of the used cars sold will be lemons.

Question 7

A pooling equilibrium occurs when

Accepted Answer

A) dissimilar workers are paid alike. 
B) firms can distinguish between workers of different qualities. 
C) workers of the same quality are paid different wages. 
D) all workers are overpaid equally. 
A) dissimilar workers are paid alike. 
B) firms can distinguish between workers of different qualities. 
C) workers of the same quality are paid different wages. 
D) all workers are overpaid equally.

Question 8

If a college degree is used to signal high ability, but the cost of a college degree is relatively high,

Accepted Answer

A) a separating equilibrium is achieved. 
B) a pooling equilibrium is achieved. 
C) even low-ability workers will attend college. 
D) the share of high-ability workers must be 1. 
A) a separating equilibrium is achieved. 
B) a pooling equilibrium is achieved. 
C) even low-ability workers will attend college. 
D) the share of high-ability workers must be 1.

Question 9

In the tourist-trap model, a consumer might pay more than the marginal cost for a good sold in a competitive market because

Accepted Answer

A) the consumer is not free to search for lower prices. 
B) souvenir stores are part of a nationwide cartel. 
C) the cost of searching for a cheaper good is more than the markup over the marginal cost. 
D) the difference in prices between stores will be smaller than the search cost. 
A) the consumer is not free to search for lower prices. 
B) souvenir stores are part of a nationwide cartel. 
C) the cost of searching for a cheaper good is more than the markup over the marginal cost. 
D) the difference in prices between stores will be smaller than the search cost.

Question 10

Describe how a firm that sells only one brand of bleach may be able to increase its profit if it re-labels some of its bleach.

Accepted Answer

The firm could sell the same bleach unde

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 prices are charged for the low-quality and for the high-quality shirts?

Accepted Answer

A) pl = 31; ph = 41 
B) pl = 51; ph = 41 
C) pl = 17; ph = 45 
D) pl = 35; ph = 28 
A) pl = 31; ph = 41 
B) pl = 51; ph = 41 
C) pl = 17; ph = 45 
D) pl = 35; ph = 28

Question 12

If reckless drivers are more likely to buy automobile insurance than safe drivers are,

Accepted Answer

A) a moral hazard has occurred. 
B) adverse selection has occurred. 
C) the market for insurance is efficient. 
D) then automobile insurance will be fairly priced. 
A) a moral hazard has occurred. 
B) adverse selection has occurred. 
C) the market for insurance is efficient. 
D) then automobile insurance will be fairly priced.

Question 13

A physical examination is NOT a good screening device for life insurance companies if

Accepted Answer

A) life-threatening diseases are usually undetected. 
B) doctors cannot be easily bribed to write a good report. 
C) medical history is a good predictor of life expectancy. 
D) one's current state of health is a good predictor of life expectancy. 
A) life-threatening diseases are usually undetected. 
B) doctors cannot be easily bribed to write a good report. 
C) medical history is a good predictor of life expectancy. 
D) one's current state of health is a good predictor of life expectancy.

Question 14

-The above figure shows the payoff to two firms in an industry deciding to make an investment in worker safety. The Nash equilibrium

Accepted Answer

A) is for just one of the firms to make the investment. 
B) is for both firms to make the investment. 
C) is for neither firm to make the investment. 
D) does not exist. 
A) is for just one of the firms to make the investment. 
B) is for both firms to make the investment. 
C) is for neither firm to make the investment. 
D) does not exist.

Question 15

Explain why high priced lawyers may support an industry ban on price advertising for lawyers.

Accepted Answer

An advertising ban that prohibits lawyer

Question 16

Which of the following reduces the effects of asymmetric information?

Accepted Answer

A) repeat purchases 
B) warranties 
C) building a reputation 
D) All of the above. 
A) repeat purchases 
B) warranties 
C) building a reputation 
D) All of the above.

Question 17

If all consumers are uninformed about the quality of a product

Accepted Answer

A) firms can increase product by selling the same product under a different name at a different price. 
B) firms will not be able to price discriminate. 
C) firms will price discriminate. 
D) firms will increase profits by charging different prices for the same product. 
A) firms can increase product by selling the same product under a different name at a different price. 
B) firms will not be able to price discriminate. 
C) firms will price discriminate. 
D) firms will increase profits by charging different prices for the same product.

Question 18

Investment in safety at the firm level poses a prisoners' dilemma because

Accepted Answer

A) if each firm plays its dominant strategy, joint profits are maximized. 
B) if each firm plays its dominant strategy, joint profits are not maximized. 
C) neither firm has a dominant strategy. 
D) the Nash equilibrium is not achieved. 
A) if each firm plays its dominant strategy, joint profits are maximized. 
B) if each firm plays its dominant strategy, joint profits are not maximized. 
C) neither firm has a dominant strategy. 
D) the Nash equilibrium is not achieved.

Question 19

If sellers of good cars and sellers of lemons both offer a warranty on their cars, consumers will then be able to tell which cars are the lemons.

Accepted Answer

A) True 
 B)False

-The above figure shows the payoff to two firms in an industry deciding to make an investment in worker safety. The dominant strategy for each firm

A person who starts practicing poisonous snake charming after signing a contract with a health insurance company is an example of

A downtown diner daily serving the same business people will be more likely to serve a tasty lunch than a snack bar at a tourist attraction.

-The market for used cars is shown in the above figure. Buyers cannot tell whether any given car is a lemon. For all cars offered for sale to be sold, the percent of all cars that are lemons is θ. What happens to θ if car buyers incur a $100 transaction cost when buying a used car?

How can a warranty at the seller's expense signal that a product is of high quality?

-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?

A pooling equilibrium occurs when

If a college degree is used to signal high ability, but the cost of a college degree is relatively high,

In the tourist-trap model, a consumer might pay more than the marginal cost for a good sold in a competitive market because

Describe how a firm that sells only one brand of bleach may be able to increase its profit if it re-labels some of its bleach.

If reckless drivers are more likely to buy automobile insurance than safe drivers are,

A physical examination is NOT a good screening device for life insurance companies if

-The above figure shows the payoff to two firms in an industry deciding to make an investment in worker safety. The Nash equilibrium

Explain why high priced lawyers may support an industry ban on price advertising for lawyers.

Which of the following reduces the effects of asymmetric information?

If all consumers are uninformed about the quality of a product

Investment in safety at the firm level poses a prisoners' dilemma because

If sellers of good cars and sellers of lemons both offer a warranty on their cars, consumers will then be able to tell which cars are the lemons.

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

-The above figure shows the payoff to two firms in an industry deciding to make an investment in worker safety. The dominant strategy for each firm

A person who starts practicing poisonous snake charming after signing a contract with a health insurance company is an example of

A downtown diner daily serving the same business people will be more likely to serve a tasty lunch than a snack bar at a tourist attraction.

-The market for used cars is shown in the above figure. Buyers cannot tell whether any given car is a lemon. For all cars offered for sale to be sold, the percent of all cars that are lemons is θ. What happens to θ if car buyers incur a $100 transaction cost when buying a used car?

How can a warranty at the seller's expense signal that a product is of high quality?

-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?

A pooling equilibrium occurs when

If a college degree is used to signal high ability, but the cost of a college degree is relatively high,

In the tourist-trap model, a consumer might pay more than the marginal cost for a good sold in a competitive market because

Describe how a firm that sells only one brand of bleach may be able to increase its profit if it re-labels some of its bleach.

If reckless drivers are more likely to buy automobile insurance than safe drivers are,

A physical examination is NOT a good screening device for life insurance companies if

-The above figure shows the payoff to two firms in an industry deciding to make an investment in worker safety. The Nash equilibrium

Explain why high priced lawyers may support an industry ban on price advertising for lawyers.

Which of the following reduces the effects of asymmetric information?

If all consumers are uninformed about the quality of a product

Investment in safety at the firm level poses a prisoners' dilemma because

If sellers of good cars and sellers of lemons both offer a warranty on their cars, consumers will then be able to tell which cars are the lemons.

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