Question 1

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

Accepted Answer

A)  is impossible. 
B)  occurs when price equals average cost. 
C)  occurs when price equals marginal cost plus the search cost. 
D)  occurs when the price is the price a monopoly would set. 
A)  is impossible. 
B)  occurs when price equals average cost. 
C)  occurs when price equals marginal cost plus the search cost. 
D)  occurs when the price is the price a monopoly would set. D

Question 2

-The above figure shows the payoff to two firms in an industry deciding to make an investment in worker safety.The Nash equilibrium

Accepted Answer

A)  is for just one of the firms to make the investment. 
B)  is for both firms to make the investment. 
C)  is for neither firm to make the investment. 
D)  does not exist. 
A)  is for just one of the firms to make the investment. 
B)  is for both firms to make the investment. 
C)  is for neither firm to make the investment. 
D)  does not exist. C

Question 3

Investment in safety at the firm level poses a prisoners' dilemma because

Accepted Answer

A)  if each firm plays its dominant strategy, joint profits are maximized. 
B)  if each firm plays its dominant strategy, joint profits are not maximized. 
C)  neither firm has a dominant strategy. 
D)  the Nash equilibrium is not achieved. 
A)  if each firm plays its dominant strategy, joint profits are maximized. 
B)  if each firm plays its dominant strategy, joint profits are not maximized. 
C)  neither firm has a dominant strategy. 
D)  the Nash equilibrium is not achieved. B

Question 4

In the tourist-trap model,a consumer might pay more than marginal cost for a good sold in a competitive market if the cost of possibly finding the good cheaper is more than the markup over marginal cost.

Accepted Answer

A) True 
 B)False

Question 5

In the automobile insurance market,adverse selection occurs when

Accepted Answer

A)  drivers with greater risks buy a policy with large deductibles. 
B)  drivers with greater risks buy a policy with no deductibles. 
C)  uninsured drivers drive recklessly. 
D)  insured drivers drive recklessly. 
A)  drivers with greater risks buy a policy with large deductibles. 
B)  drivers with greater risks buy a policy with no deductibles. 
C)  uninsured drivers drive recklessly. 
D)  insured drivers drive recklessly.

Question 6

If you sell your DVD player on eBay,you will be better informed about the quality of the product than any potential buyer.This is called

Accepted Answer

A)  adverse selection. 
B)  asymmetric information. 
C)  moral hazard. 
D)  opportunistic behavior. 
A)  adverse selection. 
B)  asymmetric information. 
C)  moral hazard. 
D)  opportunistic behavior.

Question 7

Opportunism may occur when

Accepted Answer

A)  both parties have limited information. 
B)  both parties have full information. 
C)  one party has information the other does not. 
D)  All of the above. 
A)  both parties have limited information. 
B)  both parties have full information. 
C)  one party has information the other does not. 
D)  All of the above.

Question 8

The WWQX Co.sells shirts.Shirts with the company label on the tag are perceived to be of higher quality than shirts with the store's label.Yet,shirts are of identical quality regardless of the label.The demand for perceived high-quality shirts is ph = 80 - qh.The demand for perceived low-quality shirts is pl = 19 + ph - ql.The firm can produce shirts at TC = 2qh + 2ql.What prices are charged for the low-quality and for the high-quality shirts?

Accepted Answer

A)  pl = 31; ph = 41 
B)  pl = 51; ph = 41 
C)  pl = 17; ph = 45 
D)  pl = 35; ph = 28 
A)  pl = 31; ph = 41 
B)  pl = 51; ph = 41 
C)  pl = 17; ph = 45 
D)  pl = 35; ph = 28

Question 9

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.

Accepted Answer

The adverse selection occurs when only b

Question 10

The minor league system in professional baseball can be thought of as

Accepted Answer

A)  a screening tool. 
B)  a signaling tool. 
C)  a form of statistical discrimination. 
D)  being used for the wrong reasons. 
A)  a screening tool. 
B)  a signaling tool. 
C)  a form of statistical discrimination. 
D)  being used for the wrong reasons.

Question 11

Empirical studies conclude that advertising

Accepted Answer

A)  raises prices in all markets. 
B)  can reduce the prices of many goods. 
C)  reduces the prices on all goods. 
D)  has no impact on prices. 
A)  raises prices in all markets. 
B)  can reduce the prices of many goods. 
C)  reduces the prices on all goods. 
D)  has no impact on prices.

Question 12

If there is zero search cost,then in the presence of asymmetric information,competitive firms will

Accepted Answer

A)  charge the monopoly price. 
B)  charge the competitive price. 
C)  charge zero price. 
D)  shut down. 
A)  charge the monopoly price. 
B)  charge the competitive price. 
C)  charge zero price. 
D)  shut down.

Question 13

If the market interest rate is 5% and a bank advertises loans at 12%,the bank will receive

Accepted Answer

A)  no applications. 
B)  applications from mostly low-risk borrowers. 
C)  applications from mostly high-risk borrowers. 
D)  a moral hazard. 
A)  no applications. 
B)  applications from mostly low-risk borrowers. 
C)  applications from mostly high-risk borrowers. 
D)  a moral hazard.

Question 14

Adverse selection occurs when

Accepted Answer

A)  a person takes more risks that are not known to the life insurance company because he has life insurance. 
B)  a person buys life insurance because he has a risky lifestyle that is not known to the life insurance company. 
C)  a person is a risk lover. 
D)  pregnant women with health insurance make more doctor visits than uninsured pregnant women. 
A)  a person takes more risks that are not known to the life insurance company because he has life insurance. 
B)  a person buys life insurance because he has a risky lifestyle that is not known to the life insurance company. 
C)  a person is a risk lover. 
D)  pregnant women with health insurance make more doctor visits than uninsured pregnant women.

Question 15

Used car buyers will believe that a car is of good quality when the seller signals the car's high quality by offering a warranty when

Accepted Answer

A)  a warranty on a lemon is costly to the seller. 
B)  warranties are offered on all cars. 
C)  warranties are only offered on lemons. 
D)  a warranty on a good car is a false signal. 
A)  a warranty on a lemon is costly to the seller. 
B)  warranties are offered on all cars. 
C)  warranties are only offered on lemons. 
D)  a warranty on a good car is a false signal.

Question 16

A pooling equilibrium occurs when

Accepted Answer

A)  dissimilar workers are paid alike. 
B)  firms can distinguish between workers of different qualities. 
C)  workers of the same quality are paid different wages. 
D)  all workers are overpaid equally. 
A)  dissimilar workers are paid alike. 
B)  firms can distinguish between workers of different qualities. 
C)  workers of the same quality are paid different wages. 
D)  all workers are overpaid equally.

Question 17

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

Accepted Answer

A)  a snack bar at a traveling carnival. 
B)  a vendor who parks her cart at a different location every noon. 
C)  a restaurant in the center of a business district. 
D)  a restaurant located next door to Disneyland. 
A)  a snack bar at a traveling carnival. 
B)  a vendor who parks her cart at a different location every noon. 
C)  a restaurant in the center of a business district. 
D)  a restaurant located next door to Disneyland.

Question 18

Adverse selection occurs when an agreement encourages undesirable behavior.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A)  a moral hazard has occurred. 
B)  adverse selection has occurred. 
C)  the market for insurance is efficient. 
D)  then automobile insurance will be fairly priced. 
A)  a moral hazard has occurred. 
B)  adverse selection has occurred. 
C)  the market for insurance is efficient. 
D)  then automobile insurance will be fairly priced.

Question 20

When relatively few workers have high ability,

Accepted Answer

A)  they will settle for the average wage. 
B)  they will want to signal their ability. 
C)  the premium for high ability is less than when most workers have high ability. 
D)  they do not need to signal their ability. 
A)  they will settle for the average wage. 
B)  they will want to signal their ability. 
C)  the premium for high ability is less than when most workers have high ability. 
D)  they do not need to signal their ability.

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 above figure shows the payoff to two firms in an industry deciding to make an investment in worker safety.The Nash equilibrium

Investment in safety at the firm level poses a prisoners' dilemma because

In the tourist-trap model,a consumer might pay more than marginal cost for a good sold in a competitive market if the cost of possibly finding the good cheaper is more than the markup over marginal cost.

In the automobile insurance market,adverse selection occurs when

If you sell your DVD player on eBay,you will be better informed about the quality of the product than any potential buyer.This is called

Opportunism may occur when

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.

The minor league system in professional baseball can be thought of as

Empirical studies conclude that advertising

If there is zero search cost,then in the presence of asymmetric information,competitive firms will

If the market interest rate is 5% and a bank advertises loans at 12%,the bank will receive

Adverse selection occurs when

Used car buyers will believe that a car is of good quality when the seller signals the car's high quality by offering a warranty when

A pooling equilibrium occurs when

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

Adverse selection occurs when an agreement encourages undesirable behavior.

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

When relatively few workers have high ability,

Introduction

Supply and Demand

Applying the Supply-And-Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Contracts and Moral Hazards

Filters

Exam 19: Asymmetric Information

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 above figure shows the payoff to two firms in an industry deciding to make an investment in worker safety.The Nash equilibrium

Investment in safety at the firm level poses a prisoners' dilemma because

In the tourist-trap model,a consumer might pay more than marginal cost for a good sold in a competitive market if the cost of possibly finding the good cheaper is more than the markup over marginal cost.

In the automobile insurance market,adverse selection occurs when

If you sell your DVD player on eBay,you will be better informed about the quality of the product than any potential buyer.This is called

Opportunism may occur when

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.

The minor league system in professional baseball can be thought of as

Empirical studies conclude that advertising

If there is zero search cost,then in the presence of asymmetric information,competitive firms will

If the market interest rate is 5% and a bank advertises loans at 12%,the bank will receive

Adverse selection occurs when

Used car buyers will believe that a car is of good quality when the seller signals the car's high quality by offering a warranty when

A pooling equilibrium occurs when

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

Adverse selection occurs when an agreement encourages undesirable behavior.

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

When relatively few workers have high ability,

Introduction

Supply and Demand

Applying the Supply-And-Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Contracts and Moral Hazards

Filters