Exam 18: Asymmetric Information

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.The percent of all cars that are lemons is θ.What value of θ is necessary for all cars to be sold?

Some companies subject their applicants to extensive tests.Why?

For the following, please answer "True" or "False" and explain why. -If sellers of good cars and sellers of lemons both offer a warranty on their cars,consumers will then be able to tell which cars are the lemons.

The Internet has made it possible to compare lots of prices without incurring a lot of cost.This

For the following, please answer "True" or "False" and explain why. -Adverse selection occurs when an agreement encourages undesirable behavior.

If bad drivers can usually avoid being ticketed by the police,then insurance companies will

In the automobile insurance market,adverse selection occurs when

-The above figure shows the payoff to two firms in an industry deciding to make an investment in worker safety.Neither firm will make the investment because

Explain how product liability laws can reduce adverse selection.

Explain what may occur when a buyer and a seller have unequal amounts of limited information.Describe two different types of problems that may arise when asymmetric information exists.

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.Ten percent (10%)of all cars are lemons.Which of the following statements is true?

Adverse selection occurs when

Explain why high priced lawyers may support an industry ban on price advertising for lawyers.

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.Forty percent (40%)of all cars are lemons.However,sellers can switch to selling lemons at lower costs.Which of the following statements is true?

When consumers have asymmetric information and when search costs and the number of firms are large,a single-price equilibrium in a competitive market

The XYZ Co.is hiring salespersons.They will be paid a very attractive hourly rate that is independent of how much they sell.Describe an adverse selection that would take place.Describe a moral hazard that would take place.

If reckless drivers are more likely to buy automobile insurance than safe drivers are,

-The market for used cars is shown in the above figure.Ten percent (10%)of all cars are lemons.A mechanic is offering to inspect a car for sale and certify that a car is not a lemon.If car sellers are risk neutral,what is the highest price that a car seller would pay for such a service? Who would buy this service?

As long as there is asymmetric information among consumers and positive search cost,if price is below the monopoly price and the same across all firms,then a competitive firm

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.Ten percent (10%)of all cars are lemons.Which of the following statements is true?