Question 1

-Suppose that everyone is risk neutral and buyers cannot identify the lemons.The expected value of a used car is $8,000.No good cars will be sold in this market

Accepted Answer

A)  unless the sellers of good cars place a value greater than $8,000 on their cars. 
B)  unless the sellers of lemons place a value greater than $8,000 on their cars. 
C)  unless sellers engage in cheap talk. 
D)  unless the sellers of good cars place a value lesser or equal to $8,000 on their cars. 
A)  unless the sellers of good cars place a value greater than $8,000 on their cars. 
B)  unless the sellers of lemons place a value greater than $8,000 on their cars. 
C)  unless sellers engage in cheap talk. 
D)  unless the sellers of good cars place a value lesser or equal to $8,000 on their cars.

Question 2

If one job applicant truthfully reveals that they subscribe to an industry publication,the job applicant is

Accepted Answer

A)  using the trade publication as a screening tool. 
B)  using the trade publication as a signaling tool. 
C)  using the trade publication as a form of statistical discrimination. 
D)  using the trade publication for the wrong reasons. 
A)  using the trade publication as a screening tool. 
B)  using the trade publication as a signaling tool. 
C)  using the trade publication as a form of statistical discrimination. 
D)  using the trade publication for the wrong reasons.

Question 3

Some software firms require that applicants have passed certain standardized certification tests before being hired.This policy is necessary when

Accepted Answer

A)  cheap talk does not provide a credible signal. 
B)  cheap talk does provide a credible signal. 
C)  the interests of the firm and the applicant converge. 
D)  the applicant is honest about her abilities. 
A)  cheap talk does not provide a credible signal. 
B)  cheap talk does provide a credible signal. 
C)  the interests of the firm and the applicant converge. 
D)  the applicant is honest about her abilities.

Question 4

-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

Accepted Answer

A)  each can benefit from the other firm incurring the costs. 
B)  there is no benefit to making the investment. 
C)  each firm pays for the other firm's investment. 
D)  society does not care about worker safety. 
A)  each can benefit from the other firm incurring the costs. 
B)  there is no benefit to making the investment. 
C)  each firm pays for the other firm's investment. 
D)  society does not care about worker safety.

Question 5

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.What is the maximum share of lemons that will still allow for all cars being sold?

Accepted Answer

A)  12% 
B)  16% 
C)  20% 
D)  23% 
A)  12% 
B)  16% 
C)  20% 
D)  23%

Question 6

-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?

Accepted Answer

A)  All of the cars sell for $1,900. 
B)  Only lemons are sold for $1,900. 
C)  Only lemons are sold for $1,000. 
D)  Only good cars will be sold for $2,000. 
A)  All of the cars sell for $1,900. 
B)  Only lemons are sold for $1,900. 
C)  Only lemons are sold for $1,000. 
D)  Only good cars will be sold for $2,000.

Question 7

Which of the following reduces the effects of asymmetric information?

Accepted Answer

A)  repeat purchases 
B)  warranties 
C)  building a reputation 
D)  All of the above. 
A)  repeat purchases 
B)  warranties 
C)  building a reputation 
D)  All of the above.

Question 8

Screening is the action

Accepted Answer

A)  taken by an informed person to determine the information possessed by uninformed people. 
B)  taken by an uninformed person to determine the information possessed by informed people. 
C)  taken to offset signaling. 
D)  that is cheaper and more effective than cheap talk. 
A)  taken by an informed person to determine the information possessed by uninformed people. 
B)  taken by an uninformed person to determine the information possessed by informed people. 
C)  taken to offset signaling. 
D)  that is cheaper and more effective than cheap talk.

Question 9

If adverse selection exists in a market,

Accepted Answer

A)  it increases consumer surplus but reduces producer surplus. 
B)  it reduces consumer and producer surplus. 
C)  it reduces producer surplus but has no impact on consumer surplus. 
D)  it increases both consumer and producer surplus. 
A)  it increases consumer surplus but reduces producer surplus. 
B)  it reduces consumer and producer surplus. 
C)  it reduces producer surplus but has no impact on consumer surplus. 
D)  it increases both consumer and producer surplus.

Question 10

Very few players are drafted into the NFL when they play at Division II or Division III schools whereas more players are drafted in the MLB from these schools.What can explain this?

Accepted Answer

A)  Attending a Division II or Division III school sends a stronger signal of future and present quality in the NFL. 
B)  Attending a Division II or Division III school sends a weaker signal of future and present quality in the MLB. 
C)  A signal of future and present quality is more important in the MLB than in the NFL. 
D)  Attending a particular school is like a screening test for life insurance. 
A)  Attending a Division II or Division III school sends a stronger signal of future and present quality in the NFL. 
B)  Attending a Division II or Division III school sends a weaker signal of future and present quality in the MLB. 
C)  A signal of future and present quality is more important in the MLB than in the NFL. 
D)  Attending a particular school is like a screening test for life insurance.

Question 11

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

Accepted Answer

A)  it costs them more to produce the better quality product. 
B)  they are not able to completely capture the benefits of the improvement. 
C)  consumers do not value the better product. 
D)  consumers are better informed about the product and value the new product less. 
A)  it costs them more to produce the better quality product. 
B)  they are not able to completely capture the benefits of the improvement. 
C)  consumers do not value the better product. 
D)  consumers are better informed about the product and value the new product less.

Question 12

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

Accepted Answer

If firms all sell for some price below t

Question 13

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.For all cars offered for sale to be sold,the percent of all cars that are lemons is θ.What happens to θ if car buyers incur a $100 transaction cost when buying a used car?

Accepted Answer

The sellers of good cars have a reservat

Question 14

-A market equilibrium with symmetric information is efficient because

Accepted Answer

A)  low-quality goods are not sold. 
B)  consumers pay higher prices for lemons. 
C)  sellers only offer high-quality goods. 
D)  the goods go to the people who value them the most. 
A)  low-quality goods are not sold. 
B)  consumers pay higher prices for lemons. 
C)  sellers only offer high-quality goods. 
D)  the goods go to the people who value them the most.

Question 15

If low-quality workers are unable to obtain a college degree,then a separating equilibrium can occur if

Accepted Answer

A)  the cost of obtaining a degree is less than the wage premium paid to those who have obtained the degree. 
B)  the cost of obtaining a degree is greater than the wage premium paid to those who have obtained the degree. 
C)  the cost of obtaining a degree is zero. 
D)  the wage premium paid to those who have obtained the degree is positive. 
A)  the cost of obtaining a degree is less than the wage premium paid to those who have obtained the degree. 
B)  the cost of obtaining a degree is greater than the wage premium paid to those who have obtained the degree. 
C)  the cost of obtaining a degree is zero. 
D)  the wage premium paid to those who have obtained the degree is positive.

Question 16

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

Accepted Answer

An advertising ban that prohibits lawyer

Question 17

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.

Accepted Answer

A) True 
 B)False

Question 18

Assume health insurance is provided universally by the government.This would

Accepted Answer

A)  eliminate the problems of adverse selection. 
B)  result in adverse selection. 
C)  eliminate the problems of moral hazard. 
D)  All of the above. 
A)  eliminate the problems of adverse selection. 
B)  result in adverse selection. 
C)  eliminate the problems of moral hazard. 
D)  All of the above.

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

How can a warranty at the seller's expense signal that a product is of high quality?

Accepted Answer

If the product is of low quali

-Suppose that everyone is risk neutral and buyers cannot identify the lemons.The expected value of a used car is $8,000.No good cars will be sold in this market

If one job applicant truthfully reveals that they subscribe to an industry publication,the job applicant is

Some software firms require that applicants have passed certain standardized certification tests before being hired.This policy is necessary 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

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.What is the maximum share of lemons that will still allow for all cars being sold?

-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?

Which of the following reduces the effects of asymmetric information?

Screening is the action

If adverse selection exists in a market,

Very few players are drafted into the NFL when they play at Division II or Division III schools whereas more players are drafted in the MLB from these schools.What can explain this?

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

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

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.For all cars offered for sale to be sold,the percent of all cars that are lemons is θ.What happens to θ if car buyers incur a $100 transaction cost when buying a used car?

-A market equilibrium with symmetric information is efficient because

If low-quality workers are unable to obtain a college degree,then a separating equilibrium can occur if

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

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.

Assume health insurance is provided universally by the government.This would

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.

How can a warranty at the seller's expense signal that a product is of high quality?

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

-Suppose that everyone is risk neutral and buyers cannot identify the lemons.The expected value of a used car is $8,000.No good cars will be sold in this market

If one job applicant truthfully reveals that they subscribe to an industry publication,the job applicant is

Some software firms require that applicants have passed certain standardized certification tests before being hired.This policy is necessary 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

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.What is the maximum share of lemons that will still allow for all cars being sold?

-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?

Which of the following reduces the effects of asymmetric information?

Screening is the action

If adverse selection exists in a market,

Very few players are drafted into the NFL when they play at Division II or Division III schools whereas more players are drafted in the MLB from these schools.What can explain this?

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

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

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.For all cars offered for sale to be sold,the percent of all cars that are lemons is θ.What happens to θ if car buyers incur a $100 transaction cost when buying a used car?

-A market equilibrium with symmetric information is efficient because

If low-quality workers are unable to obtain a college degree,then a separating equilibrium can occur if

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

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.

Assume health insurance is provided universally by the government.This would

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.

How can a warranty at the seller's expense signal that a product is of high quality?

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