Exam 16: The Economics of Information

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.What can Edward do to induce the housekeeper to work regularly?

________ refers to actions taken by one party in a transaction that are relevant for,but not observed by,the other party.

Health insurance markets are likely to attract a disproportionate number of ________ individuals.

Why do insurance companies in many developing countries not offer full health insurance coverage to older applicants?

Which of the following is likely to happen in a used car market if the buyers feel that the best they can do is buy a lemon?

Which of the following is a problem that arises in a health insurance market?

Company A and Company B are two car insurance companies in a city.Company A pays 100 percent of the money required for repair in case of an accident,while Company B pays 70 percent of the total money required.A research agency has found that Company A's customers have more accidents.Which of the following explains this difference?

Sarah initially used her cell phone mostly to make important business calls.However,when she was informed that henceforth her phone bills would be reimbursed by her employer,she started using her cell phone to make frequent calls to her friends and relatives.This behavior is an example of ________.

Employee theft is an example of ________.

In a market with asymmetric information,a good is said to have hidden characteristics if ________.

Jane started eating more junk food and taking less care of her health after she bought a life insurance plan.Her behavior is an example of ________.

State provision of free healthcare may encourage individuals to engage in unhealthy behavior,such as excessive smoking or the consumption of alcohol.This is an example of ________.

Which of the following is likely to be used as a signal in the job market?

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 true in this case?

Health insurance companies often charge high premiums because they expect to attract ________.

________ occurs when one agent in a transaction knows about a hidden characteristic of a good.

The Harvard experiment in the mid-1990s found that private health insurance was expensive because ________.

A car insurance company pays 90 percent of the total damage in case of an accident.This is an example of ________.

A factory urgently needs to hire some workers.The factory owner is willing to pay a wage of $15 per hour to responsible workers and is unwilling to hire workers who require constant monitoring.On average,he expects five out of the ten workers who have come for the interview to be sincere.How much should he offer to pay the workers he hires?