Question 1

Assume health insurance is provided universally by the government. This would

Accepted Answer

A) force every taxpayer to bear the costs of adverse selection. 
B) force every taxpayer to bear the costs of moral hazard. 
C) force the government to deal with adverse selection problems. 
D) force foreign governments to deal with moral hazard problems. 
A) force every taxpayer to bear the costs of adverse selection. 
B) force every taxpayer to bear the costs of moral hazard. 
C) force the government to deal with adverse selection problems. 
D) force foreign governments to deal with moral hazard problems.

Question 2

If a principal and agent have an efficient contract, then

Accepted Answer

A) one of them must be more risk-averse than the other. 
B) neither can be made better off without harming the other. 
C) they must have symmetric information. 
D) the principal bears more of the risk. 
A) one of them must be more risk-averse than the other. 
B) neither can be made better off without harming the other. 
C) they must have symmetric information. 
D) the principal bears more of the risk.

Question 3

Monitoring is often used by firms in an attempt to decrease

Accepted Answer

A) shirking. 
B) piece rates. 
C) adverse selection. 
D) signaling. 
A) shirking. 
B) piece rates. 
C) adverse selection. 
D) signaling.

Question 4

eBay has a seller reputation system to provide

Accepted Answer

A) consumers with a signal concerning seller quality. 
B) sellers a chance to signal other sellers concerning their quality. 
C) a reduction in monopoly power. 
D) improvements in investor relations. 
A) consumers with a signal concerning seller quality. 
B) sellers a chance to signal other sellers concerning their quality. 
C) a reduction in monopoly power. 
D) improvements in investor relations.

Question 5

Which of the following reduces the effects of asymmetric information?

Accepted Answer

A) repeat purchases 
B) warranties 
C) building a reputation 
D) All of the above. 
A) repeat purchases 
B) warranties 
C) building a reputation 
D) All of the above.

Question 6

If an agent is risk neutral and a principal is risk averse, which of the following contracts would be efficient in risk bearing?

Accepted Answer

A) A fixed fee is paid to the agent. 
B) A fixed fee is paid to the principal. 
C) An hourly rate is paid to the agent. 
D) The agent enjoys a share of the profit. 
A) A fixed fee is paid to the agent. 
B) A fixed fee is paid to the principal. 
C) An hourly rate is paid to the agent. 
D) The agent enjoys a share of the profit.

Question 7

A consumer could screen the quality of a pizza joint by

Accepted Answer

A) asking friends. 
B) using online rating sites. 
C) watching the chef prepare the pizza. 
D) All of the above. 
A) asking friends. 
B) using online rating sites. 
C) watching the chef prepare the pizza. 
D) All of the above.

Question 8

If a firm has established monitoring devices that have a 50% chance of detecting shirking, and an employee gains $5,000 from shirking, the employer can deter shirking by having employees post a bond equal to

Accepted Answer

A) $2,500. 
B) $5,000. 
C) $10,000. 
D) $50,000. 
A) $2,500. 
B) $5,000. 
C) $10,000. 
D) $50,000.

Question 9

An uninformed party can use ________ to learn about the information held by the informed party.

Accepted Answer

A) signaling 
B) screening 
C) a warranty 
D) educational attainment 
A) signaling 
B) screening 
C) a warranty 
D) educational attainment

Question 10

To reduce adverse selection

Accepted Answer

A) firms can use screening. 
B) both consumers and firms can use screening. 
C) the government could eliminate all monopolies and oligopolies. 
D) Both B and C. 
A) firms can use screening. 
B) both consumers and firms can use screening. 
C) the government could eliminate all monopolies and oligopolies. 
D) Both B and C.

Question 11

In a store that sells souvenirs, suppose an agent receives a $1 commission for each unit sold, and the principal receives the residual profit. As a result

Accepted Answer

A) joint profit is maximized. 
B) the agent will sell until the principal's marginal cost equals $1. 
C) no agent would enter into such a contract. 
D) the agent wishes to sell as many units as he can. 
A) joint profit is maximized. 
B) the agent will sell until the principal's marginal cost equals $1. 
C) no agent would enter into such a contract. 
D) the agent wishes to sell as many units as he can.

Question 12

Explain how product liability laws can reduce adverse selection.

Accepted Answer

Product liability laws force p

Assume health insurance is provided universally by the government. This would

If a principal and agent have an efficient contract, then

Monitoring is often used by firms in an attempt to decrease

eBay has a seller reputation system to provide

Which of the following reduces the effects of asymmetric information?

If an agent is risk neutral and a principal is risk averse, which of the following contracts would be efficient in risk bearing?

A consumer could screen the quality of a pizza joint by

If a firm has established monitoring devices that have a 50% chance of detecting shirking, and an employee gains $5,000 from shirking, the employer can deter shirking by having employees post a bond equal to

An uninformed party can use ________ to learn about the information held by the informed party.

To reduce adverse selection

In a store that sells souvenirs, suppose an agent receives a $1 commission for each unit sold, and the principal receives the residual profit. As a result

Explain how product liability laws can reduce adverse selection.

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Costs

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Managerial Decision-Making Under Uncertainty

Government and Business

Global Business

Filters

Exam 15: Asymmetric Information

Assume health insurance is provided universally by the government. This would

If a principal and agent have an efficient contract, then

Monitoring is often used by firms in an attempt to decrease

eBay has a seller reputation system to provide

Which of the following reduces the effects of asymmetric information?

If an agent is risk neutral and a principal is risk averse, which of the following contracts would be efficient in risk bearing?

A consumer could screen the quality of a pizza joint by

If a firm has established monitoring devices that have a 50% chance of detecting shirking, and an employee gains $5,000 from shirking, the employer can deter shirking by having employees post a bond equal to

An uninformed party can use ________ to learn about the information held by the informed party.

To reduce adverse selection

In a store that sells souvenirs, suppose an agent receives a $1 commission for each unit sold, and the principal receives the residual profit. As a result

Explain how product liability laws can reduce adverse selection.

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Costs

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Managerial Decision-Making Under Uncertainty

Government and Business

Global Business

Filters