Exam 16: The Economics of Information

Signaling takes place in markets with ________.

Efficiency wages refer to wages ________.

Which of the following helps reduce the problem of adverse selection in health insurance markets?

A warranty is an example of ________.

Which of the following can solve the problem of moral hazard that arises because of the provision of unemployment benefits?

________ are guarantees of quality issued directly by either the manufacturer or the seller of goods.

________ refer to the money that a policyholder pays when filing a claim.

Sometimes banks tend to invest in risky stocks because the deposits of their customers are insured by the Federal Deposit Insurance Committee.This behavior is an example of ________.

Scenario: You walk into a used car lot to buy your first car. However, you are not sure of the quality of the cars in the lot and expect one-third of them to be of poor quality. -Refer to the scenario above.Suppose you decide to buy a Toyota Corolla.You value the car at $10,000,but the car dealer values it at $8,500,which is not known to you.Which of the following is likely to be true?

The basic idea behind moral hazard is that ________.

Used cars in Corinthia sold for about 20 percent less than new cars of the same model manufactured in the same year.However,price differences were reduced when certified used car dealers entered the market for used cars in Corinthia.What explains this phenomenon?

Paul is looking for a used washing machine.He has posted his requirement on an online exchange Web site and has also mentioned the maximum amount that he is willing to pay for it.If his willingness to pay is lower than the price of good-quality used washing machines,what is likely to happen?

Scenario: Tom wants to buy a used iPhone from an online exchange Web site. He expects 50 percent of the used phones to have some defect. He is willing to pay up to $80 for a phone without any defect and $0 for a defective phone. An owner of a good-quality iPhone is likely to sell his phone if he gets a price of $70. -Refer to the scenario above.In this case,how much should Tom pay for a used iPhone?

The Chicago Heights school district study found that ________.

Scenario: Mike wants to buy an ancient painting from a curator. Mike values the original painting at $50,000, while he does not have any value for a fake one. However, he cannot differentiate between the original painting and a fake painting. -Refer to the scenario above.If the curator values the painting at $45,000,which of the following problems is likely to arise?

Sarah went to a store to buy a used camera.She was looking at different models when the store manager asked her about the maximum price that she would pay.Because it was impossible to know the quality of the cameras,Sarah lowered her willingness to pay to $200,although she valued a used camera of good quality at $300.If the seller values a camera of good quality at $250,what is most likely to happen in this case?

80 percent of the total number of people in Genovia with health insurance are more than 40 years old.Which of the following economic concepts helps explain this fact?

Asymmetric information in a market can lead to ________.

Scenario: Tom wants to buy a used iPhone from an online exchange Web site. He expects 50 percent of the used phones to have some defect. He is willing to pay up to $80 for a phone without any defect and $0 for a defective phone. An owner of a good-quality iPhone is likely to sell his phone if he gets a price of $70. -Refer to the scenario above.Which of the following problems is likely to occur in this market?

Rick was charged $200 when claiming insurance for his damaged car.This is an example of ________.