Question 1

An indication that Insurance companies anticipate adverse selection is

Accepted Answer

A) they do not require a deductible 
B) they classify clients into different risk types according to their claim history 
C) they do not classify clients into different risk types according to pre-existing conditions 
D) they do not require a co-payment 
A) they do not require a deductible 
B) they classify clients into different risk types according to their claim history 
C) they do not classify clients into different risk types according to pre-existing conditions 
D) they do not require a co-payment B

Question 2

Which firm is not dealing with adverse selection

Accepted Answer

A) a manufacturer requires a 90 day probationary period for new employees 
B) a temporary clerical agency requires a typing test 
C) a manufacturer requires suppliers to be ISO 9000 certified 
D) Smokers get the same life insurance rates as non-smokers 
A) a manufacturer requires a 90 day probationary period for new employees 
B) a temporary clerical agency requires a typing test 
C) a manufacturer requires suppliers to be ISO 9000 certified 
D) Smokers get the same life insurance rates as non-smokers D

Question 3

Adverse selection is

Accepted Answer

A) when people act differently because they are insured 
B) when more risk averse people want to be insured more 
C) when people at greater risk want to be insured more 
D) when your guess at a test question is wrong 
A) when people act differently because they are insured 
B) when more risk averse people want to be insured more 
C) when people at greater risk want to be insured more 
D) when your guess at a test question is wrong C

Question 4

Which is a screen against adverse selection

Accepted Answer

A) Insurance companies require homeowners to have smoke detectors 
B) Rearview cameras in cars 
C) Installing engine monitors to track driving habits of the insured 
D) Prospective secretaries must take a typing test before being hired 
A) Insurance companies require homeowners to have smoke detectors 
B) Rearview cameras in cars 
C) Installing engine monitors to track driving habits of the insured 
D) Prospective secretaries must take a typing test before being hired

Question 5

The "lemons" problem is that

Accepted Answer

A) cars of verifiable high quality are withheld from the used car market 
B) cars of verifiable low quality are withheld from the used car market 
C) cars of unverifiable high quality are withheld from the used car market 
D) cars of unverifiable low quality are withheld from the used car market 
A) cars of verifiable high quality are withheld from the used car market 
B) cars of verifiable low quality are withheld from the used car market 
C) cars of unverifiable high quality are withheld from the used car market 
D) cars of unverifiable low quality are withheld from the used car market

Question 6

Signaling is

Accepted Answer

A) actions by the informed party to reveal her true risks 
B) actions by the informed party to conceal her true risks 
C) actions by the uninformed party to uncover the true risks 
D) actions by the uninformed party to conceal the true risks 
A) actions by the informed party to reveal her true risks 
B) actions by the informed party to conceal her true risks 
C) actions by the uninformed party to uncover the true risks 
D) actions by the uninformed party to conceal the true risks

Question 7

Most people buy insurance because they

Accepted Answer

A) are risk lovers 
B) enjoy the gamble 
C) are risk neutral 
D) want to avoid gambles 
A) are risk lovers 
B) enjoy the gamble 
C) are risk neutral 
D) want to avoid gambles

Question 8

The following is an example of risk aversion

Accepted Answer

A) those applying for a well-paid job tend to be the most qualified 
B) more reckless drivers opt for cars with fewer safety devices 
C) the contractor with the lowest bid for a is under-qualified 
D) Initial Public Offerings (IPOs)seek investors when prospects look good 
A) those applying for a well-paid job tend to be the most qualified 
B) more reckless drivers opt for cars with fewer safety devices 
C) the contractor with the lowest bid for a is under-qualified 
D) Initial Public Offerings (IPOs)seek investors when prospects look good

Question 9

Which firm is not dealing with adverse selection

Accepted Answer

A) a manufacturer requires a 90 day probationary period for new employees 
B) a temporary clerical agency hires without verifying typing skills 
C) a manufacturer requires suppliers to be ISO 9000 certified 
D) Smokers get the worse life insurance rates as non-smokers 
A) a manufacturer requires a 90 day probationary period for new employees 
B) a temporary clerical agency hires without verifying typing skills 
C) a manufacturer requires suppliers to be ISO 9000 certified 
D) Smokers get the worse life insurance rates as non-smokers

Question 10

The following is an example of risk aversion

Accepted Answer

A) those applying for a well-paid job tend to be the most qualified 
B) more reckless drivers opt for cars with fewer safety devices 
C) the contractor with the lowest bid for a is the most qualified 
D) Initial Public Offerings (IPOs)seek investors when prospects look poor 
A) those applying for a well-paid job tend to be the most qualified 
B) more reckless drivers opt for cars with fewer safety devices 
C) the contractor with the lowest bid for a is the most qualified 
D) Initial Public Offerings (IPOs)seek investors when prospects look poor

Question 11

Adverse selection in insurance requires that

Accepted Answer

A) all people face the same risk 
B) potential customers facing more risk are no more interested in purchasing insurance 
C) people are not risk averse 
D) insurers cannot tell higher risk people from lower risk people 
A) all people face the same risk 
B) potential customers facing more risk are no more interested in purchasing insurance 
C) people are not risk averse 
D) insurers cannot tell higher risk people from lower risk people

Question 12

Which firm is not dealing with adverse selection

Accepted Answer

A) a manufacturer requires a 90 day probationary period for new employees 
B) a temporary clerical agency requires a typing test 
C) a manufacturer contracts with suppliers regardless of ISO 9000 status 
D) Smokers get the worse life insurance rates as non-smokers 
A) a manufacturer requires a 90 day probationary period for new employees 
B) a temporary clerical agency requires a typing test 
C) a manufacturer contracts with suppliers regardless of ISO 9000 status 
D) Smokers get the worse life insurance rates as non-smokers

Question 13

Adverse selection in insurance requires that

Accepted Answer

A) all people face the same risk 
B) potential customers facing more risk are more interested in purchasing insurance 
C) people are not risk averse 
D) insurers can tell higher risk people from lower risk people 
A) all people face the same risk 
B) potential customers facing more risk are more interested in purchasing insurance 
C) people are not risk averse 
D) insurers can tell higher risk people from lower risk people

Question 14

An indication that Insurance companies anticipate adverse selection is

Accepted Answer

A) they require a deductible 
B) they do not classify clients into different risk types according to their claim history 
C) they do not classify clients into different risk types according to pre-existing conditions 
D) they do not require a co-payment 
A) they require a deductible 
B) they do not classify clients into different risk types according to their claim history 
C) they do not classify clients into different risk types according to pre-existing conditions 
D) they do not require a co-payment

Question 15

Screening is

Accepted Answer

A) actions by the informed party to reveal her true risks 
B) actions by the informed party to conceal her true risks 
C) actions by the uninformed party to uncover the true risks 
D) actions by the uninformed party to conceal the true risks 
A) actions by the informed party to reveal her true risks 
B) actions by the informed party to conceal her true risks 
C) actions by the uninformed party to uncover the true risks 
D) actions by the uninformed party to conceal the true risks

Question 16

The following is an example of risk aversion

Accepted Answer

A) those applying for a well-paid job tend to be unqualified 
B) more reckless drivers opt for cars with fewer safety devices 
C) the contractor with the lowest bid for a is the most qualified 
D) Initial Public Offerings (IPOs)seek investors when prospects look good 
A) those applying for a well-paid job tend to be unqualified 
B) more reckless drivers opt for cars with fewer safety devices 
C) the contractor with the lowest bid for a is the most qualified 
D) Initial Public Offerings (IPOs)seek investors when prospects look good

Question 17

Which is NOT an example of signaling high quality in a social setting

Accepted Answer

A) wearing a business suit on a job interview 
B) leaving a big tip for the waiter after a dinner date 
C) offering a cheap engagement ring to your bride 
D) Visiting the beauty salon before a big date 
A) wearing a business suit on a job interview 
B) leaving a big tip for the waiter after a dinner date 
C) offering a cheap engagement ring to your bride 
D) Visiting the beauty salon before a big date

Question 18

The following is an example of risk aversion

Accepted Answer

A) those applying for a well-paid job tend to be the most qualified 
B) more reckless drivers opt for cars with more safety devices 
C) the contractor with the lowest bid for a is the most qualified 
D) Initial Public Offerings (IPOs)seek investors when prospects look good 
A) those applying for a well-paid job tend to be the most qualified 
B) more reckless drivers opt for cars with more safety devices 
C) the contractor with the lowest bid for a is the most qualified 
D) Initial Public Offerings (IPOs)seek investors when prospects look good

Question 19

Individuals who are more risk averse

Accepted Answer

A) buy less insurance 
B) buy more insurance 
C) are not more or less inclined to buy insurance 
D) are philosophically opposed to insurance 
A) buy less insurance 
B) buy more insurance 
C) are not more or less inclined to buy insurance 
D) are philosophically opposed to insurance

Question 20

Which is NOT an example of signaling high quality in a social setting

Accepted Answer

A) wearing everyday clothes to a job interview 
B) leaving a big tip for the waiter after a dinner date 
C) offering an expensive engagement ring to your bride 
D) Visiting the beauty salon before a big date 
A) wearing everyday clothes to a job interview 
B) leaving a big tip for the waiter after a dinner date 
C) offering an expensive engagement ring to your bride 
D) Visiting the beauty salon before a big date

Exam 19: The Problem of Adverse Selection

An indication that Insurance companies anticipate adverse selection is

Which firm is not dealing with adverse selection

Adverse selection is

Which is a screen against adverse selection

The "lemons" problem is that

Signaling is

Most people buy insurance because they

The following is an example of risk aversion

Which firm is not dealing with adverse selection

The following is an example of risk aversion

Adverse selection in insurance requires that

Which firm is not dealing with adverse selection

Adverse selection in insurance requires that

An indication that Insurance companies anticipate adverse selection is

Screening is

The following is an example of risk aversion

Which is NOT an example of signaling high quality in a social setting

The following is an example of risk aversion

Individuals who are more risk averse

Which is NOT an example of signaling high quality in a social setting

The One Lessor of Business

Benefits, Costs, and Decisions

Extent How Muchdecisions

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 Indirect Price Discrimination

Strategic Games

Bargaining

Making Decisions With Uncertainty

Auctions

The Problem of Moral Hazard

Getting Employees to Work in the Firms Best Interest

Getting Divisions to Work in the Firms Best Interest

Managing Vertical Relationships

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