Exam 19: Asymmetric Information

In a labor-market separating equilibrium with high-skill and low-skill workers and where a costly educational degree is used solely as a signal device,government can increase total social welfare by

If diplomas work efficiently in signaling productive capabilities to employers,the resulting equilibrium

In a labor-market pooling equilibrium with high-skill and low-skill workers and where a costly educational degree is used as a signaling device,

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

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

Selling the same product under different brand names allows a firm to price discriminate as long as

Describe how a firm that sells only one brand of bleach may be able to increase its profit if it re-labels some of its bleach.

-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.Which of the following statements is TRUE?

eBay has a seller reputation system to provide

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 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,w_h,is $75,000.The wage for a known low-quality worker,w_l,is $50,000.For what value of the share of the work force that is of high quality,t,is a pooling equilibrium possible?

Adverse selection can occur when

Firms under-invest in safety because

Screening and signaling in the labor market are inefficient

-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 a 20% chance he is lying.Given the payoff matrix in the above figure,what job level will the company offer to Joe? Will he accept this offer?

The lemons problem is due to

Employers verify the facts of potential employees' resumes to avoid

Signals can help prevent adverse selection as long as a false signal is costly to the person sending it.

-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?

Competitive firms are able to set price above marginal cost when