Question 1

If a college degree is used to signal high ability,but the cost of a college degree is relatively high,

Accepted Answer

A)  a separating equilibrium is achieved. 
B)  a pooling equilibrium is achieved. 
C)  even low-ability workers will attend college. 
D)  the share of high-ability workers must be 1. 
A)  a separating equilibrium is achieved. 
B)  a pooling equilibrium is achieved. 
C)  even low-ability workers will attend college. 
D)  the share of high-ability workers must be 1.

Question 2

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 3

Government mandated safety standard within firms

Accepted Answer

A)  will always decrease efficiency. 
B)  can increase efficiency by avoiding a prisoner's dilemma outcome. 
C)  are unnecessary because of asymmetric information. 
D)  will create unfair competition among firms. 
A)  will always decrease efficiency. 
B)  can increase efficiency by avoiding a prisoner's dilemma outcome. 
C)  are unnecessary because of asymmetric information. 
D)  will create unfair competition among firms.

Question 4

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 5

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 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 will be sold. 
B)  No cars will be sold. 
C)  Only lemons will be sold. 
D)  Only good cars will be sold. 
A)  All of the cars will be sold. 
B)  No cars will be sold. 
C)  Only lemons will be sold. 
D)  Only good cars will be sold.

Question 7

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

Accepted Answer

A)  can always profit from raising its price. 
B)  can always profit from lowering its price. 
C)  can profit from raising its price but by no more than the search cost. 
D)  can profit from lowering its price but by no more than the search cost. 
A)  can always profit from raising its price. 
B)  can always profit from lowering its price. 
C)  can profit from raising its price but by no more than the search cost. 
D)  can profit from lowering its price but by no more than the search cost.

Question 8

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

Accepted Answer

A)  customers know the products are identical. 
B)  customers do not know the products are identical. 
C)  the products really are not the same. 
D)  the firm lets customers know that the products are identical. 
A)  customers know the products are identical. 
B)  customers do not know the products are identical. 
C)  the products really are not the same. 
D)  the firm lets customers know that the products are identical.

Question 9

Auto insurance rates are lower for young women relative to young men.An unusually reckless young woman driver benefits from this

Accepted Answer

A)  statistical discrimination. 
B)  signal. 
C)  screening. 
D)  majority voting. 
A)  statistical discrimination. 
B)  signal. 
C)  screening. 
D)  majority voting.

Question 10

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?

Accepted Answer

Under a pooling equilibrium,all workers

Question 11

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.

Question 12

Firms are able to price discriminate

Accepted Answer

A)  when all customers are uninformed about quality differences. 
B)  when no customers are uninformed about quality differences. 
C)  when some customers are uninformed about quality differences. 
D)  when there is full information about quality available to all customers. 
A)  when all customers are uninformed about quality differences. 
B)  when no customers are uninformed about quality differences. 
C)  when some customers are uninformed about quality differences. 
D)  when there is full information about quality available to all customers.

Question 13

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 14

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 15

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

Question 16

-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.

Question 17

Firms under-invest in safety because

Accepted Answer

A)  firms are not concerned with safety. 
B)  firms do not want their plants to be safe. 
C)  firms are risk averse. 
D)  firms do not enjoy all of the benefits from investments in safety. 
A)  firms are not concerned with safety. 
B)  firms do not want their plants to be safe. 
C)  firms are risk averse. 
D)  firms do not enjoy all of the benefits from investments in safety.

Question 18

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.

Question 19

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

Accepted Answer

A)  each firm tries to outdo each other in making safety improvements. 
B)  each firm has the incentive to be the safest in its industry. 
C)  the equilibrium level of safety is less than optimal. 
D)  the optimal level of safety is achieved. 
A)  each firm tries to outdo each other in making safety improvements. 
B)  each firm has the incentive to be the safest in its industry. 
C)  the equilibrium level of safety is less than optimal. 
D)  the optimal level of safety is achieved.

Question 20

Explain why some people who are applying for a job at a bank dress up,arrive early,and have their paperwork neatly completed for the job interview.

Accepted Answer

They are trying to eliminate a

If a college degree is used to signal high ability,but the cost of a college degree is relatively high,

Assume Health Insurance is provided universally by the government.This would

Government mandated safety standard within firms

Which of the following reduces the effects of asymmetric information?

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

-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?

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

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

Auto insurance rates are lower for young women relative to young men.An unusually reckless young woman driver benefits from this

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

Firms are able to price discriminate

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,

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

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

Firms under-invest in safety because

When relatively few workers have high ability,

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

Explain why some people who are applying for a job at a bank dress up,arrive early,and have their paperwork neatly completed for the job interview.

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

If a college degree is used to signal high ability,but the cost of a college degree is relatively high,

Assume Health Insurance is provided universally by the government.This would

Government mandated safety standard within firms

Which of the following reduces the effects of asymmetric information?

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

-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?

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

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

Auto insurance rates are lower for young women relative to young men.An unusually reckless young woman driver benefits from this

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

Firms are able to price discriminate

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,

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

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

Firms under-invest in safety because

When relatively few workers have high ability,

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

Explain why some people who are applying for a job at a bank dress up,arrive early,and have their paperwork neatly completed for the job interview.

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