Question 1

To keep employees from shirking,invest in greater monitoring

Accepted Answer

A) ​when monitoring is expensive relative to its benefits 
B) especially when monitoring is not very efficient 
C) when employees respond well to incentive contracts 
D) ​when incentives fail to solve either moral hazard and adverse selection problems with employees 
A) ​when monitoring is expensive relative to its benefits 
B) especially when monitoring is not very efficient 
C) when employees respond well to incentive contracts 
D) ​when incentives fail to solve either moral hazard and adverse selection problems with employees D

Question 2

​A shoe salesman working on commission must decide whether to work hard or shirk.Working hard would increase the probability of a sale from 20% to 70% but the effort would cost him $5.If the commission on a typical pair of shoes was $12,would he decide to work hard?

Accepted Answer

A) ​Yes because it is higher than what it costs him in effort 
B) Yes because it is higher than zero 
C) No,because it costs him more in effort 
D) ​None of the above 
A) ​Yes because it is higher than what it costs him in effort 
B) Yes because it is higher than zero 
C) No,because it costs him more in effort 
D) ​None of the above A

Question 3

​A shoe salesman working on commission must decide whether to work hard or shirk.Working hard would increase the probability of a sale from 20% to 70% but the effort would cost him $5.If the typical commission on a pair of shoes was $8,would he decide to work hard?

Accepted Answer

A) ​Yes because it is higher than what it costs him in effort 
B) Yes because it is higher than zero 
C) No,because it costs him more in effort 
D) ​None of the above 
A) ​Yes because it is higher than what it costs him in effort 
B) Yes because it is higher than zero 
C) No,because it costs him more in effort 
D) ​None of the above C

Question 4

​An example of moral hazard is

Accepted Answer

A) ​workers working diligently even though the boss is not looking 
B) health care insured workers dieting and exercising 
C) drivers of safer cars texting on their phones while driving 
D) ​borrowers investing their loan proceeds exactly as the bank requires 
A) ​workers working diligently even though the boss is not looking 
B) health care insured workers dieting and exercising 
C) drivers of safer cars texting on their phones while driving 
D) ​borrowers investing their loan proceeds exactly as the bank requires

Question 5

​To decrease anxiety in its most accomplished teachers,a school decides to offer them tenure,to help them concentrate on teaching better.Instead it notices that even the best of the teachers started to get sloppy with their work.The school did not foresee

Accepted Answer

A) ​Adverse selection 
B) Moral hazard 
C) All of the above 
D) ​None of the above 
A) ​Adverse selection 
B) Moral hazard 
C) All of the above 
D) ​None of the above

Question 6

​A difference between moral hazard and adverse selection is that

Accepted Answer

A) ​moral hazard deals with pre-contractually determined public information 
B) moral hazard deals with post-contractually determined private information 
C) adverse selection deals with pre-contractually determined private information 
D) ​adverse selection deals with post-contractually determined public information 
A) ​moral hazard deals with pre-contractually determined public information 
B) moral hazard deals with post-contractually determined private information 
C) adverse selection deals with pre-contractually determined private information 
D) ​adverse selection deals with post-contractually determined public information

Question 7

​The difference between moral hazard and adverse selection is

Accepted Answer

A) ​moral hazard has to do with unobservable characteristics of individuals 
B) moral hazard has to do with unobservable actions of individuals 
C) adverse selection is when individuals change their behaviors because of a contract 
D) ​adverse selection is when you choose the wrong answer on a test 
A) ​moral hazard has to do with unobservable characteristics of individuals 
B) moral hazard has to do with unobservable actions of individuals 
C) adverse selection is when individuals change their behaviors because of a contract 
D) ​adverse selection is when you choose the wrong answer on a test

Question 8

​The following is NOT an example of a potential monitoring solution to moral hazard

Accepted Answer

A) ​blocking social network sites on company computers 
B) rejecting a job candidate that fails to show up at the allotted interview time 
C) GPS tracking devices in repair trucks 
D) ​listening in on call center conversations 
A) ​blocking social network sites on company computers 
B) rejecting a job candidate that fails to show up at the allotted interview time 
C) GPS tracking devices in repair trucks 
D) ​listening in on call center conversations

Question 9

​One difference between moral hazard and adverse selection is

Accepted Answer

A) ​Adverse selection has to do with unobservable characteristics of individuals 
B) Adverse selection has to do with unobservable actions of individuals 
C) Adverse selection is when individuals most appropriate for positions are most likely to apply for them 
D) ​Adverse selection is when you choose the wrong answer on a test 
A) ​Adverse selection has to do with unobservable characteristics of individuals 
B) Adverse selection has to do with unobservable actions of individuals 
C) Adverse selection is when individuals most appropriate for positions are most likely to apply for them 
D) ​Adverse selection is when you choose the wrong answer on a test

Question 10

Lindsey's auto-insurance company issued her a policy that required the installation of a devise that monitors her driving habits.Lindsey is confused because she had never gotten into an accident before she bought the insurance.The insurance company is protecting itself against

Accepted Answer

A) ​Adverse selection 
B) Moral hazard 
C) Bad drivers 
D) ​None of the above 
A) ​Adverse selection 
B) Moral hazard 
C) Bad drivers 
D) ​None of the above

Question 11

​Which is NOT an example of moral hazard

Accepted Answer

A) ​people eat more at all-you-can-eat buffets 
B) loggers clear-cut a tract of land when paying a fixed fee rather than when paying per tree felled 
C) Drivers of heavier,safer cares are less likely to run stop signs 
D) ​workers on commission work harder than those paid an hourly wage 
A) ​people eat more at all-you-can-eat buffets 
B) loggers clear-cut a tract of land when paying a fixed fee rather than when paying per tree felled 
C) Drivers of heavier,safer cares are less likely to run stop signs 
D) ​workers on commission work harder than those paid an hourly wage

Question 12

An example of moral hazard is​

Accepted Answer

A) ​people drive as carefully in icy conditions with antilock brakes as without 
B) people drive as safely with more airbags as without 
C) football players avoid 'spearing' with their heads even with safer helmets 
D) ​people fail to read the medicine warnings more often when self-medicating versus with a doctor's prescription 
A) ​people drive as carefully in icy conditions with antilock brakes as without 
B) people drive as safely with more airbags as without 
C) football players avoid 'spearing' with their heads even with safer helmets 
D) ​people fail to read the medicine warnings more often when self-medicating versus with a doctor's prescription

Question 13

​Which of the following problems are created by an information asymmetry

Accepted Answer

A) ​Moral hazard 
B) Adverse selection 
C) Both of the above 
D) ​None of the above 
A) ​Moral hazard 
B) Adverse selection 
C) Both of the above 
D) ​None of the above

Question 14

A commission-paid shoe salesman must decide whether to work hard or shirk.Working hard would increase the probability of a sale from 20% to 40% but would cost him $20.If the salesman is paid a $40 commission per sale and a $20 fixed salary and is under monitoring where he would get fired if he doesn't work hard,what would he choose to do?

Accepted Answer

A) ​Work hard 
B) Shirk 
C) Walk away from the job 
D) ​None of the above 
A) ​Work hard 
B) Shirk 
C) Walk away from the job 
D) ​None of the above

Question 15

​Economists disagree with constant government bailouts of large,struggling companies because it can give a rise to

Accepted Answer

A) ​Moral hazard 
B) Adverse selection 
C) Lazy managers 
D) ​None of the above 
A) ​Moral hazard 
B) Adverse selection 
C) Lazy managers 
D) ​None of the above

Question 16

​Moral hazard implies that

Accepted Answer

A) ​Insured individuals exercise less care because they have less incentive to do so 
B) Insured individuals exercise more care because they have less incentive to do so 
C) Insured individuals exercise more care because they have more incentive to do so 
D) ​Insured individuals exercise less care because they have more incentive to do so 
A) ​Insured individuals exercise less care because they have less incentive to do so 
B) Insured individuals exercise more care because they have less incentive to do so 
C) Insured individuals exercise more care because they have more incentive to do so 
D) ​Insured individuals exercise less care because they have more incentive to do so

Question 17

​An example of moral hazard is

Accepted Answer

A) ​people drive less carefully in icy conditions with antilock brakes than without 
B) people drive as safely with more airbags as without 
C) football players avoid 'spearing' with their heads even with safer helmets 
D) ​people read the medicine warnings as carefully when self-medicating as with a doctor's prescription 
A) ​people drive less carefully in icy conditions with antilock brakes than without 
B) people drive as safely with more airbags as without 
C) football players avoid 'spearing' with their heads even with safer helmets 
D) ​people read the medicine warnings as carefully when self-medicating as with a doctor's prescription

Question 18

​An example of moral hazard is

Accepted Answer

A) ​workers shirking when the boss is not looking 
B) health care insured workers dieting and exercising 
C) drivers of safer cars turning their phones off before driving 
D) ​borrowers investing their loan proceeds exactly as the bank requires 
A) ​workers shirking when the boss is not looking 
B) health care insured workers dieting and exercising 
C) drivers of safer cars turning their phones off before driving 
D) ​borrowers investing their loan proceeds exactly as the bank requires

Question 19

Banks are more willing to lend money to those who have a sizable amount of their own money at risk because

Accepted Answer

A) ​They like lending to individuals who usually don't need the money 
B) Those with their own money at risk are more likely to only propose viable projects to the bank. 
C) Borrowers with their own capital invested are more likely to make payments on any loan that is made. 
D) ​Both B&C 
A) ​They like lending to individuals who usually don't need the money 
B) Those with their own money at risk are more likely to only propose viable projects to the bank. 
C) Borrowers with their own capital invested are more likely to make payments on any loan that is made. 
D) ​Both B&C

Question 20

​An example of moral hazard is

Accepted Answer

A) ​A taxi driver paid per mile taking the shortest route 
B) a piece-rate garment worker shirking more than a per hour worker 
C) an hourly salesman working less hard than a commission salesman 
D) ​an author on contract going to as many book signings as one with a percentage royalty rate 
A) ​A taxi driver paid per mile taking the shortest route 
B) a piece-rate garment worker shirking more than a per hour worker 
C) an hourly salesman working less hard than a commission salesman 
D) ​an author on contract going to as many book signings as one with a percentage royalty rate

To keep employees from shirking,invest in greater monitoring

A shoe salesman working on commission must decide whether to work hard or shirk.Working hard would increase the probability of a sale from 20% to 70% but the effort would cost him $5.If the commission on a typical pair of shoes was $12,would he decide to work hard?

A shoe salesman working on commission must decide whether to work hard or shirk.Working hard would increase the probability of a sale from 20% to 70% but the effort would cost him $5.If the typical commission on a pair of shoes was $8,would he decide to work hard?

An example of moral hazard is

To decrease anxiety in its most accomplished teachers,a school decides to offer them tenure,to help them concentrate on teaching better.Instead it notices that even the best of the teachers started to get sloppy with their work.The school did not foresee

A difference between moral hazard and adverse selection is that

The difference between moral hazard and adverse selection is

The following is NOT an example of a potential monitoring solution to moral hazard

One difference between moral hazard and adverse selection is

Lindsey's auto-insurance company issued her a policy that required the installation of a devise that monitors her driving habits.Lindsey is confused because she had never gotten into an accident before she bought the insurance.The insurance company is protecting itself against

Which is NOT an example of moral hazard

An example of moral hazard is

Which of the following problems are created by an information asymmetry

Economists disagree with constant government bailouts of large,struggling companies because it can give a rise to

Moral hazard implies that

An example of moral hazard is

An example of moral hazard is

Banks are more willing to lend money to those who have a sizable amount of their own money at risk because

An example of moral hazard is

The One Lessor of Business

Benefits, Costs, and Decisions

Extent How Much Decisions

Investment Decisions: Look Ahead and Reason Back

Simple Pricing

Economies of Scale and Scope

Understanding Markets and Industry Changes

Market Structure and Long Run Equilibrium

Strategy: the Quest to Keep Profit From Eroding

Foreign Exchange, Trade, and Bubbles

More Realistic and Complex Pricing

Direct Price Discrimination

Strategic Games

Bargaining

Making Decisions With Uncertainty

Auctions

The Problem of Adverse Selection

Getting Employees to Work in the Firms Best Interest

Getting Divisions to Work in the Firms Best Interest

Managing Vertical Relationships

Filters

Exam 18: The Problem of Moral Hazard

To keep employees from shirking,invest in greater monitoring

​A shoe salesman working on commission must decide whether to work hard or shirk.Working hard would increase the probability of a sale from 20% to 70% but the effort would cost him $5.If the commission on a typical pair of shoes was $12,would he decide to work hard?

​A shoe salesman working on commission must decide whether to work hard or shirk.Working hard would increase the probability of a sale from 20% to 70% but the effort would cost him $5.If the typical commission on a pair of shoes was $8,would he decide to work hard?

​An example of moral hazard is

​To decrease anxiety in its most accomplished teachers,a school decides to offer them tenure,to help them concentrate on teaching better.Instead it notices that even the best of the teachers started to get sloppy with their work.The school did not foresee

​A difference between moral hazard and adverse selection is that

​The difference between moral hazard and adverse selection is

​The following is NOT an example of a potential monitoring solution to moral hazard

​One difference between moral hazard and adverse selection is

Lindsey's auto-insurance company issued her a policy that required the installation of a devise that monitors her driving habits.Lindsey is confused because she had never gotten into an accident before she bought the insurance.The insurance company is protecting itself against

​Which is NOT an example of moral hazard

An example of moral hazard is​

​Which of the following problems are created by an information asymmetry

​Economists disagree with constant government bailouts of large,struggling companies because it can give a rise to

​Moral hazard implies that

​An example of moral hazard is

​An example of moral hazard is

Banks are more willing to lend money to those who have a sizable amount of their own money at risk because

​An example of moral hazard is

The One Lessor of Business

Benefits, Costs, and Decisions

Extent How Much Decisions

Investment Decisions: Look Ahead and Reason Back

Simple Pricing

Economies of Scale and Scope

Understanding Markets and Industry Changes

Market Structure and Long Run Equilibrium

Strategy: the Quest to Keep Profit From Eroding

Foreign Exchange, Trade, and Bubbles

More Realistic and Complex Pricing

Direct Price Discrimination

Strategic Games

Bargaining

Making Decisions With Uncertainty

Auctions

The Problem of Adverse Selection

Getting Employees to Work in the Firms Best Interest

Getting Divisions to Work in the Firms Best Interest

Managing Vertical Relationships

Filters

A shoe salesman working on commission must decide whether to work hard or shirk.Working hard would increase the probability of a sale from 20% to 70% but the effort would cost him $5.If the commission on a typical pair of shoes was $12,would he decide to work hard?

A shoe salesman working on commission must decide whether to work hard or shirk.Working hard would increase the probability of a sale from 20% to 70% but the effort would cost him $5.If the typical commission on a pair of shoes was $8,would he decide to work hard?

An example of moral hazard is

To decrease anxiety in its most accomplished teachers,a school decides to offer them tenure,to help them concentrate on teaching better.Instead it notices that even the best of the teachers started to get sloppy with their work.The school did not foresee

A difference between moral hazard and adverse selection is that

The difference between moral hazard and adverse selection is

The following is NOT an example of a potential monitoring solution to moral hazard

One difference between moral hazard and adverse selection is

Which is NOT an example of moral hazard

An example of moral hazard is

Which of the following problems are created by an information asymmetry

Economists disagree with constant government bailouts of large,struggling companies because it can give a rise to

Moral hazard implies that

An example of moral hazard is

An example of moral hazard is

An example of moral hazard is