Question 1

Your grade point average acts as ________ to potential employers.

Accepted Answer

A)  a signal 
B)  private information 
C)  a reservation price 
D)  a guarantee 
E)  insurance 
A)  a signal 
B)  private information 
C)  a reservation price 
D)  a guarantee 
E)  insurance

Question 2

The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers.
-In a pooling equilibrium,there ________ a deadweight loss in the market for safe drivers and there ________ a deadweight loss in the market for aggressive drivers.

Accepted Answer

A)  is; is 
B)  is; is not 
C)  is not; is 
D)  is not; is not 
E)  might be; might be 
A)  is; is 
B)  is; is not 
C)  is not; is 
D)  is not; is not 
E)  might be; might be

Question 3

When an auto insurance company is screening,it is

Accepted Answer

A)  ignoring the possibility of moral hazard in order to minimize adverse selection. 
B)  attempting to keep its private information private. 
C)  trying to determine if a driver is an aggressive driver or a safe driver. 
D)  making its private information public. 
E)  marketing its policies to customers. 
A)  ignoring the possibility of moral hazard in order to minimize adverse selection. 
B)  attempting to keep its private information private. 
C)  trying to determine if a driver is an aggressive driver or a safe driver. 
D)  making its private information public. 
E)  marketing its policies to customers.

Question 4

"People buy insurance do protect themselves from moral hazard." True or false? Explain.

Accepted Answer

The statement is false.In fact,insurance

Question 5

In the market for auto insurance,in a pooling equilibrium,

Accepted Answer

A)  risky and safe drivers pay the same premium for insurance. 
B)  risky drivers pay a larger premium than do safe drivers for insurance. 
C)  risky drivers pay a smaller premium than do safe drivers for insurance. 
D)  risky drivers cannot obtain insurance. 
E)  safe drivers cannot obtain insurance. 
A)  risky and safe drivers pay the same premium for insurance. 
B)  risky drivers pay a larger premium than do safe drivers for insurance. 
C)  risky drivers pay a smaller premium than do safe drivers for insurance. 
D)  risky drivers cannot obtain insurance. 
E)  safe drivers cannot obtain insurance.

Question 6

Asymmetric information means that

Accepted Answer

A)  the buyer must have information that the seller does not have. 
B)  the seller must have information that the buyer does not have. 
C)  the buyer and seller have the same information. 
D)  either the buyer has information that the seller does not have or the seller has information that the buyer does not have. 
E)  None of the above answers are correct. 
A)  the buyer must have information that the seller does not have. 
B)  the seller must have information that the buyer does not have. 
C)  the buyer and seller have the same information. 
D)  either the buyer has information that the seller does not have or the seller has information that the buyer does not have. 
E)  None of the above answers are correct.

Question 7

Without warranties,used car buyers can assume that all used cars are "lemons" because of

Accepted Answer

A)  moral hazard. 
B)  false signals. 
C)  moral dilemma. 
D)  adverse selection. 
E)  adverse reaction. 
A)  moral hazard. 
B)  false signals. 
C)  moral dilemma. 
D)  adverse selection. 
E)  adverse reaction.

Question 8

How can a warranty at the seller's expense signal that a product is high quality?

Accepted Answer

If the product is low quality,the warran

Question 9

If buyers cannot assess the quality of used cars and there are no warranties,

Accepted Answer

A)  only lemons are sold. 
B)  only good used cars are sold. 
C)  good cars are sold at a higher price than bad cars. 
D)  there is no adverse selection problem. 
E)  lemons and good cars sell for the same price. 
A)  only lemons are sold. 
B)  only good used cars are sold. 
C)  good cars are sold at a higher price than bad cars. 
D)  there is no adverse selection problem. 
E)  lemons and good cars sell for the same price.

Question 10

In the used car market,________ is(are)a way of signaling.

Accepted Answer

A)  high-deductibles 
B)  warranties 
C)  low interest rates 
D)  high prices for high-quality used cars 
E)  screening, using low prices for low quality used cars and high prices for high quality used cars, 
A)  high-deductibles 
B)  warranties 
C)  low interest rates 
D)  high prices for high-quality used cars 
E)  screening, using low prices for low quality used cars and high prices for high quality used cars,

Question 11

Ben is an aggressive driver so he is more likely to buy auto insurance.This situation illustrates the idea of

Accepted Answer

A)  moral hazard. 
B)  adverse selection. 
C)  the lemon problem. 
D)  inefficiency. 
E)  a pooling equilibrium. 
A)  moral hazard. 
B)  adverse selection. 
C)  the lemon problem. 
D)  inefficiency. 
E)  a pooling equilibrium.

Question 12

Adverse selection can occur when

Accepted Answer

A)  all parties have full information. 
B)  one party has information not available to the other party. 
C)  information is not full but both parties have the same information. 
D)  incentives result in one party not reaching an agreement with the other party. 
E)  nobody has any information. 
A)  all parties have full information. 
B)  one party has information not available to the other party. 
C)  information is not full but both parties have the same information. 
D)  incentives result in one party not reaching an agreement with the other party. 
E)  nobody has any information.

Question 13

Compared to other major nations,the United States spends ________ on health care and achieves ________ efficiency.

Accepted Answer

A)  less; greater 
B)  more; about the same 
C)  less; less 
D)  more; less 
E)  about the same; less 
A)  less; greater 
B)  more; about the same 
C)  less; less 
D)  more; less 
E)  about the same; less

Question 14

One of the ways the market for used cars copes with the problems associated with private information is through the offering of

Accepted Answer

A)  leases. 
B)  warranties. 
C)  low interest rates. 
D)  high prices for high-quality used cars. 
E)  low prices. 
A)  leases. 
B)  warranties. 
C)  low interest rates. 
D)  high prices for high-quality used cars. 
E)  low prices.

Question 15

The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers.
-In a separating equilibrium,there is ________ of insurance in the market for safe drivers and there is ________ of insurance in the market for aggressive drivers.

Accepted Answer

A)  overprovision; underprovision 
B)  overprovision; overprovision 
C)  underprovision; underprovision 
D)  underprovision; overprovision 
E)  an efficient quantity; an efficient quantity 
A)  overprovision; underprovision 
B)  overprovision; overprovision 
C)  underprovision; underprovision 
D)  underprovision; overprovision 
E)  an efficient quantity; an efficient quantity

Question 16

Adverse selection is created by

Accepted Answer

A)  incentives to change behavior after two parties have reached an agreement. 
B)  risk. 
C)  signaling. 
D)  taxes. 
E)  private information. 
A)  incentives to change behavior after two parties have reached an agreement. 
B)  risk. 
C)  signaling. 
D)  taxes. 
E)  private information.

Question 17

Bill purchases property insurance for his office building,which includes coverage for fire damage.The policy offers premium discounts for smoke detectors,fire alarms,fire extinguishers and sprinkler systems.This is an incentive system to help avoid

Accepted Answer

A)  adverse selection. 
B)  adverse signals. 
C)  moral hazard. 
D)  screening. 
E)  None of the above answers are correct. 
A)  adverse selection. 
B)  adverse signals. 
C)  moral hazard. 
D)  screening. 
E)  None of the above answers are correct.

Question 18

Private information

Accepted Answer

A)  can create adverse selection but plays no role in creating moral hazard. 
B)  explains why drivers screen auto insurance companies. 
C)  means that unless it is overcome, the equilibrium in the market will be a separating equilibrium. 
D)  plays a role in the markets for health-care insurance and auto insurance. 
E)  cannot explain why the U.S. expenditures on health care per person exceed those in other major nations. 
A)  can create adverse selection but plays no role in creating moral hazard. 
B)  explains why drivers screen auto insurance companies. 
C)  means that unless it is overcome, the equilibrium in the market will be a separating equilibrium. 
D)  plays a role in the markets for health-care insurance and auto insurance. 
E)  cannot explain why the U.S. expenditures on health care per person exceed those in other major nations.

Question 19

In the used car market with warranties,the equilibrium is a ________ and there is ________.

Accepted Answer

A)  pooling equilibrium; inefficiency, partly because of over-supply of good cars 
B)  pooling equilibrium; inefficiency, partly because of over-supply of lemons (poor quality used cars) 
C)  separating equilibrium; no inefficiency 
D)  separating equilibrium; inefficiency, partly because of over-supply of lemons (poor quality used cars) 
E)  pooling equilibrium; no inefficiency 
A)  pooling equilibrium; inefficiency, partly because of over-supply of good cars 
B)  pooling equilibrium; inefficiency, partly because of over-supply of lemons (poor quality used cars) 
C)  separating equilibrium; no inefficiency 
D)  separating equilibrium; inefficiency, partly because of over-supply of lemons (poor quality used cars) 
E)  pooling equilibrium; no inefficiency

Question 20

In the used car market with no warranties,the market for lemons (poor quality used cars)is ________ and the market for good cars is ________.

Accepted Answer

A)  efficient; efficient 
B)  inefficient because of over-supply; inefficient because of under-supply 
C)  inefficient because of over-supply; inefficient because of over-supply 
D)  efficient; inefficient because of under-supply 
E)  inefficient because of over-supply; efficient 
A)  efficient; efficient 
B)  inefficient because of over-supply; inefficient because of under-supply 
C)  inefficient because of over-supply; inefficient because of over-supply 
D)  efficient; inefficient because of under-supply 
E)  inefficient because of over-supply; efficient

Your grade point average acts as ________ to potential employers.

The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers. -In a pooling equilibrium,there a deadweight loss in the market for safe drivers and there a deadweight loss in the market for aggressive drivers.

When an auto insurance company is screening,it is

"People buy insurance do protect themselves from moral hazard." True or false? Explain.

In the market for auto insurance,in a pooling equilibrium,

Asymmetric information means that

Without warranties,used car buyers can assume that all used cars are "lemons" because of

How can a warranty at the seller's expense signal that a product is high quality?

If buyers cannot assess the quality of used cars and there are no warranties,

In the used car market,________ is(are)a way of signaling.

Ben is an aggressive driver so he is more likely to buy auto insurance.This situation illustrates the idea of

Adverse selection can occur when

Compared to other major nations,the United States spends on health care and achieves efficiency.

One of the ways the market for used cars copes with the problems associated with private information is through the offering of

The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers. -In a separating equilibrium,there is of insurance in the market for safe drivers and there is of insurance in the market for aggressive drivers.

Adverse selection is created by

Bill purchases property insurance for his office building,which includes coverage for fire damage.The policy offers premium discounts for smoke detectors,fire alarms,fire extinguishers and sprinkler systems.This is an incentive system to help avoid

Private information

In the used car market with warranties,the equilibrium is a and there is .

In the used car market with no warranties,the market for lemons (poor quality used cars)is and the market for good cars is .

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Taxes

Global Markets in Action

Externalities

Public Goods and Common Resources

Consumer Choice and Demand

Production and Cost

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Markets for Factors of Production

Economic Inequality

Filters

Exam 12: Markets With Private Information

Your grade point average acts as ________ to potential employers.

The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers. -In a pooling equilibrium,there ________ a deadweight loss in the market for safe drivers and there ________ a deadweight loss in the market for aggressive drivers.

When an auto insurance company is screening,it is

"People buy insurance do protect themselves from moral hazard." True or false? Explain.

In the market for auto insurance,in a pooling equilibrium,

Asymmetric information means that

Without warranties,used car buyers can assume that all used cars are "lemons" because of

How can a warranty at the seller's expense signal that a product is high quality?

If buyers cannot assess the quality of used cars and there are no warranties,

In the used car market,________ is(are)a way of signaling.

Ben is an aggressive driver so he is more likely to buy auto insurance.This situation illustrates the idea of

Adverse selection can occur when

Compared to other major nations,the United States spends ________ on health care and achieves ________ efficiency.

One of the ways the market for used cars copes with the problems associated with private information is through the offering of

The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers. -In a separating equilibrium,there is ________ of insurance in the market for safe drivers and there is ________ of insurance in the market for aggressive drivers.

Adverse selection is created by

Bill purchases property insurance for his office building,which includes coverage for fire damage.The policy offers premium discounts for smoke detectors,fire alarms,fire extinguishers and sprinkler systems.This is an incentive system to help avoid

Private information

In the used car market with warranties,the equilibrium is a ________ and there is ________.

In the used car market with no warranties,the market for lemons (poor quality used cars)is ________ and the market for good cars is ________.

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Taxes

Global Markets in Action

Externalities

Public Goods and Common Resources

Consumer Choice and Demand

Production and Cost

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Markets for Factors of Production

Economic Inequality

Filters

The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers. -In a pooling equilibrium,there a deadweight loss in the market for safe drivers and there a deadweight loss in the market for aggressive drivers.

Compared to other major nations,the United States spends on health care and achieves efficiency.

The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers. -In a separating equilibrium,there is of insurance in the market for safe drivers and there is of insurance in the market for aggressive drivers.

In the used car market with warranties,the equilibrium is a and there is .

In the used car market with no warranties,the market for lemons (poor quality used cars)is and the market for good cars is .