Exam 16: The Economics of Information

Robert changed jobs and relocated to a new city.He initially decided to rent a small apartment close to his place of work.However,he decided to live in a much bigger and costlier apartment when he found that his employer would pay him a house rent allowance.This is an example of ________.

Why do the owners of good-quality used cars stay away from the market for used cars?

Scenario: The market for used cell phones is very popular in Barylia. However, several phones available in this market are of an inferior quality, and it is often impossible to differentiate between a good-quality phone and a poor-quality phone. -Refer to the scenario above.Which of the following problems is likely to arise in the market for used cell phones in Barylia?

Some health insurance companies pay only 70 percent to 80 percent of the medical costs incurred by their customers.What is the reason for this?

The probability of being detected after committing a murder in Richland is 0.8,and if detected,the murderer is imprisoned for a minimum of 10 years.What is the expected punishment in this case?

More people started building houses in the earthquake-prone regions of Polonia after its government launched a compensation scheme for houses damaged in earthquakes in these regions.This is an example of ________.

Claudia went to a department store to buy a few things for her new house.She found that several items in the store were on discount and decided to make the most of the deals offered.However,when she started using the things that she bought on discount,she realized that many of them were defective.This happened because of the presence of ________.

In a market with asymmetric information,gains from trade occur if ________.

What is signaling?

Why do health insurance companies ask their potential customers to submit their previous medical records?

Because warranties are potentially ________,low-quality goods are ________ to have warranties.

Distinguish between two kinds of asymmetric information.

The government of Perinthia provided generous unemployment benefits to all unemployed workers in the country.However,the new government that came into power reduced the amount of unemployment insurance paid to each worker.This increased the average number of hours that unemployed workers spent daily looking for jobs.This suggests that ________ exists in the labor market in Perinthia.

How can a health insurance mandate help reduce the problem of adverse selection in the health insurance market?

The used car market has a significant amount of adverse selection because ________.

Jack had an accident that caused $4,200 worth of damage to his car.He had to pay $500 for repairs,while his insurer paid the remaining amount.Why do insurance companies have such policies?

If government decides to provide generous unemployment benefits,it is likely to ________.

To be useful as a signal in a market with asymmetric information,the signal must be ________.

Scenario: Edward has inherited a house. As the house is far away from where he lives currently, it has been vacant for the past few years. A housekeeper is paid regularly to look after the house and keep it clean. However, because Edward seldom visits the house, the housekeeper does not clean the house regularly. -Refer to the scenario above.Identify the correct statement in this case.

Scenario: The market for used cell phones is very popular in Barylia. However, several phones available in this market are of an inferior quality, and it is often impossible to differentiate between a good-quality phone and a poor-quality phone. -Refer to the scenario above.Based on the given information,we can conclude that the market for used cell phones in Barylia ________.