Exam 16: The Economics of Information

Mark works as a business development officer for a leading electronics company.His main task is to meet potential clients at their offices and set up business deals with them.Mark earns a fixed salary every month irrespective of the number of clients approached and deals made.As his boss does not cross-check the number of clients he meets in a day,Mark often does not meet all the clients that he is supposed to.His behavior is an example of ________.

What,according to Akerlof,causes the price difference between a 1-year-old used car and an unsold car manufactured by the same company in the same year?

Adverse selection arises in the health insurance market because ________.

Employees at Xeta Inc.are divided into teams,and workers from each team are assigned jobs.However,management often finds it difficult to measure the effort of each worker,as the output is generated by the team as a whole.What can management do to prevent the workers from shirking?

Which of the following is likely to be a potential problem of the Affordable Care Act (ACA)implemented by President Obama in 2010?

A textile manufacturing unit faces low productivity due to the workers shirking responsibilities.Which of the following is a possible solution that would increase the productivity of the workers?

An employee in a department store often steals goods when other employees are not around.Because the store does not have a surveillance camera,the store manager is unable to monitor his activities.This behavior is an example of ________.

Employees at La Dola Inc.often engaged in hasty decision making that resulted in losses for the company.Because employees were not individually accountable for their decisions,this trend continued.However,when the company introduced a profit-sharing policy for its employees,they began scrutinizing their decisions carefully before implementing them.Explain the reason for the change in employees' behavior.

Which of the following is true of a used car market?

Scenario: Pat works in a factory that produces jams, jellies, and marmalades. His job is to check whether each pack of marmalade is sealed before it is dispatched for sale. Several other workers in the factory do the same job. Therefore, it is not possible for the manager of the factory to keep track of the number of packs each worker actually inspects. -Refer to the scenario above.In this case,the employer may prevent shirking by ________.

A study conducted by a research firm revealed that RiteCure Health Insurance charges higher premiums than most of its rivals.The study also revealed that unlike its rivals,60 percent of RiteCure's customers have chronic illnesses. a)What is the link between these two findings? b)What is likely to happen if the premium continues to rise?

Which of the following is true of coinsurance?

Ted went to the market to buy Good X.He was willing to pay up to $2.50 per unit of the good.However,he expected some units of the good to be defective.Therefore,when the seller asked a price of $2.30 per unit,he refused to pay more than $2 for each unit.If the seller knows which units of the good are defective,what is most likely to happen in this case?

How can a buyer of car insurance help reduce the effects of adverse selection?

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 behaves in this particular way because of the presence of ________.

You decide to carry a letter of recommendation from your college professor to your first interview.This is an example of ________.

Under the Affordable Care Act (ACA)implemented by President Obama in 2010,________.

Which of the following is likely to be a solution to the moral hazard problem arising from the implementation of the Affordable Care Act (ACA)in the United States?

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.You are eager to pay $10,000 for a good-quality car but $0 for a poor-quality car.Suppose you decide to buy a Toyota Corolla that the car dealer values at $8,500.What is the most that you would be willing to pay for the car?

Robert decided to purchase a health insurance plan but did not mention in the application form that his family has a history of heart ailments that are hereditary.What will happen if several customers like Robert purchase the insurance?