Exam 18: Asymmetric Information

Suppose 10% of all workers are of high ability.If a firm knows a worker's ability,workers of low ability are paid $20,000 and workers of high ability are paid $30,000.A college degree can signal ability,and the cost of the degree is $11,000.Will there be a pooling equilibrium or a separating equilibrium?

Adverse selection can occur when

In a company,if high-ability workers get paid $80,000,while low-ability workers get paid $50,000,the education (MBA)that can qualify the workers as high-ability ones cost $20,000.What's the highest share of high-ability workers to get a separating equilibrium?

Asymmetric information will always cause

-The market for used cars is shown in the above figure.Neither buyers nor sellers can tell whether any given car is a lemon.Forty percent (40%)of all cars are lemons.Which of the following statements is true?

New smart phone applications are developed to help consumers find the cheapest prices in the neighborhood.Therefore,

Two firms,A and B,are faced with a decision on making investments in safety.They each currently earn profit of $500 each.A safety investment would cost $100 paid by the firm that makes the investment and would lower both firms' labor costs by $75 per firm.Draw the payoff matrix for this game and determine the Nash equilibrium.Does it make sense for the firms in the industry to ask the government to force them to make the investment? Explain.

The cost,c,of a college education that serves only as a signal of a high-quality worker is $20,000.The wage of a known high-quality worker,wh,is $75,000.The wage for a known low-quality worker,w₁,is $50,000.For what value of the share of the work force that is of high quality,t,is a pooling equilibrium possible?

-Joe wants to achieve the highest position possible with the XYZ Co.During the interview,he tells them he is capable of performing many difficult tasks.The company feels there is an 10% chance he is lying.Given the payoff matrix in the above figure,what job level will the company offer to Joe? Why?

A pooling equilibrium occurs when

A person who starts practicing poisonous snake charming after signing a contract with a health insurance company is an example of

For the following, please answer "True" or "False" and explain why. -A downtown diner daily serving the same business people will be more likely to serve a tasty lunch than a snack bar at a tourist attraction.

If a life insurance company does not require a medical exam of its policyholders,it is most likely that the company

Workers do not know the safety records at individual firms; they only know industry averages.As a result,

A consumer is likely to avoid adverse selection and get a high-quality lunch at

In a competitive market with large search costs,many firms,and asymmetric information,why is the monopoly price the only possible single-price equilibrium?

A physical examination is NOT a good screening device for life insurance companies if

With asymmetric information,firms might be reluctant to improve the quality of their products because

Empirical studies conclude that advertising

A person who practices poisonous snake charming and does not reveal this to her health insurance company before purchasing insurance is an example of