Exam 16: The Economics of Information

Norah works as a content writer for an online magazine.Because her work is not evaluated daily,she often spends her time playing online games,which adversely affects the quality of her work. a)What is the term used to refer to such behavior? b)What is the solution to this problem? Explain your answer.

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.How much should he pay for the painting if he thinks that there is a 70 percent chance that the painting he is buying is original?

In a market with asymmetric information,hidden actions exist if ________.

Which of the following is a market-based solution to the problem of adverse selection?

________ are the portion of claims that policyholders must pay for out of their own pockets.

Christine works as a receptionist in an office.While at work,she is not supposed to access social networking Web sites.However,as her browsing activities are not monitored,she often uses the office network to access these Web sites.This is an example of ________.

A fruit retailer buys 50 pounds of apples from the wholesale market every day.The retailer has observed that 20 percent of the apples bought each time are not good quality.Because it is not possible for the retailer to check each apple before buying them,how much should he pay for each pound if he values good apples at $1.40 per pound and bad apples at $0 per pound?

In which of the following markets are buyers likely to have private information?

Linda noticed that ever since her brother bought theft insurance for his car,he has been forgetting to lock his car.Her brother's behavior is an example of ________.

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.The housekeeper's behavior is an example of ________.

________ refers to an action that an individual with private information takes to convince others about her information.

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.What is the minimum price the seller will accept for the car?

You went to a craft show and paid an exorbitant price for an embroidered shawl that the seller said was hand embroidered and had been imported from India.Several months later,you found a similar shawl in another showroom at a much lower price and realized that the one you bought was not imported.This is an example of a market with ________.

In a market with asymmetric information,________.

Why do people often tend to take risks if they are insured?

Why do workers exert more effort when they are paid higher salaries?

Which of the following is a prominent solution to adverse selection in used car markets?

Which of the following was the finding of the Cutler-Reber study of different insurance plans in the mid-1990s?

A firm is likely to pay high efficiency wages when ________.

Which of the following is likely to be an example of a principal-agent relationship?