Question 1

eBay has a seller reputation system to provide

Accepted Answer

A)  consumers with a signal concerning seller quality. 
B)  sellers a chance to signal other sellers concerning their quality. 
C)  a reduction in monopoly power. 
D)  improvements in investor relations. 
A)  consumers with a signal concerning seller quality. 
B)  sellers a chance to signal other sellers concerning their quality. 
C)  a reduction in monopoly power. 
D)  improvements in investor relations.

Question 2

If a student achieves a high SAT score,this

Accepted Answer

A)  sends a signal to a college that the applicant will be a good college student. 
B)  does not act as a screening device. 
C)  is a moral hazard. 
D)  provides a college with no information. 
A)  sends a signal to a college that the applicant will be a good college student. 
B)  does not act as a screening device. 
C)  is a moral hazard. 
D)  provides a college with no information.

Question 3

Cheap talk works at placing workers in the right job as long as

Accepted Answer

A)  the interests of the worker and the firm coincide. 
B)  all workers want the most demanding jobs regardless of their abilities. 
C)  workers have different ability levels that are unknown to firms. 
D)  firms are not profit maximizers. 
A)  the interests of the worker and the firm coincide. 
B)  all workers want the most demanding jobs regardless of their abilities. 
C)  workers have different ability levels that are unknown to firms. 
D)  firms are not profit maximizers.

Question 4

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.

Accepted Answer

The firm could sell the same bleach unde

Question 5

-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 6

Two firms,A and B,are faced with a decision on making investments in safety.They each currently earn profit of $500.A safety investment would cost $100 paid by the firm that makes the investment and would lower both firms' labor costs by $75 per firm.If both firms share the investment ($50 each)their labor costs are lowered by $100 per firm.Draw the payoff matrix for this game and determine the Nash equilibrium.Does it make sense for the firms in the industry to ask the government to force them to make the investment? Explain.

Accepted Answer

@#IMG-DLM& For both firms,the dominant strategy is

Question 7

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

Accepted Answer

A)  use one's driving record as a signal. 
B)  use one's driving record as a screening device. 
C)  not be able to use one's driving record as a screening device. 
D)  request driving records directly from the police and not from the individual applicant. 
A)  use one's driving record as a signal. 
B)  use one's driving record as a screening device. 
C)  not be able to use one's driving record as a screening device. 
D)  request driving records directly from the police and not from the individual applicant.

Question 8

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 9

-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 10% chance he is lying.Given the payoff matrix in the above figure,what job level will the company offer to Joe? Why?

Accepted Answer

The expected payoff to the firm of givin

Question 10

A necessary condition for a separating equilibrium when workers can use education as a signal of their ability is

Accepted Answer

A)  the high-ability wage is larger than the sum of the degree cost plus the low-ability wage. 
B)  the cost of a degree is larger than the low-skill wage. 
C)  the high-ability wage is smaller than the low-ability wage. 
D)  the high-skill wage is equal to the cost of a degree. 
A)  the high-ability wage is larger than the sum of the degree cost plus the low-ability wage. 
B)  the cost of a degree is larger than the low-skill wage. 
C)  the high-ability wage is smaller than the low-ability wage. 
D)  the high-skill wage is equal to the cost of a degree.

Question 11

Explain how product liability laws can reduce adverse selection.

Accepted Answer

Product liability laws force p

Question 12

A person who practices poisonous snake charming and does not reveal this to her health insurance company before purchasing insurance is an example of

Accepted Answer

A)  moral hazard. 
B)  adverse selection. 
C)  signaling. 
D)  screening. 
A)  moral hazard. 
B)  adverse selection. 
C)  signaling. 
D)  screening.

Question 13

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,we can say that

Accepted Answer

A)  education is socially inefficient because it is costly and provides no useful skills to the worker. 
B)  education is socially efficient. 
C)  education is privately inefficient for high-skill workers. 
D)  education is privately useful for low-skill workers only. 
A)  education is socially inefficient because it is costly and provides no useful skills to the worker. 
B)  education is socially efficient. 
C)  education is privately inefficient for high-skill workers. 
D)  education is privately useful for low-skill workers only.

Question 14

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

Accepted Answer

A)  subsidizing school for low-skill workers. 
B)  subsidizing school for all workers. 
C)  eliminating schooling, i.e., banning wasteful signaling. 
D)  subsidizing school for high-skill workers. 
A)  subsidizing school for low-skill workers. 
B)  subsidizing school for all workers. 
C)  eliminating schooling, i.e., banning wasteful signaling. 
D)  subsidizing school for high-skill workers.

Question 15

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 16

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,all else equal,an increase in the wage differential between high- and low-skill workers leads to

Accepted Answer

A)  an increase in the required minimum share of high-skill workers. 
B)  a decrease in the required minimum share of high-skill workers. 
C)  no change in the required minimum share of high-skill workers. 
D)  None of the above answers are correct. 
A)  an increase in the required minimum share of high-skill workers. 
B)  a decrease in the required minimum share of high-skill workers. 
C)  no change in the required minimum share of high-skill workers. 
D)  None of the above answers are correct.

Question 17

If the government provides universal health insurance,what screening process will the government need?

Accepted Answer

A)  It won't need a screening test. 
B)  It will only give health insurance to non-smokers. 
C)  It won't use screening tests but it will use statistical discrimination. 
D)  It won't use screening tests but it will use signals. 
A)  It won't need a screening test. 
B)  It will only give health insurance to non-smokers. 
C)  It won't use screening tests but it will use statistical discrimination. 
D)  It won't use screening tests but it will use signals.

Question 18

Which of the following is an example of a hidden characteristic?

Accepted Answer

A)  After purchasing life insurance, Billy joins the bomb squad. 
B)  Only the owner knows about her car defects. 
C)  Bobby let his employer know about his college degree. 
D)  Sally provides her driving record to the car insurance company. 
A)  After purchasing life insurance, Billy joins the bomb squad. 
B)  Only the owner knows about her car defects. 
C)  Bobby let his employer know about his college degree. 
D)  Sally provides her driving record to the car insurance company.

Question 19

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 20

A firm is more likely to adopt multiple brand names for the same product when the good is a non-durable.

Accepted Answer

A) True 
 B)False

eBay has a seller reputation system to provide

If a student achieves a high SAT score,this

Cheap talk works at placing workers in the right job 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.Ten percent (10%)of all cars are lemons.Which of the following statements is true?

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

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

-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 10% chance he is lying.Given the payoff matrix in the above figure,what job level will the company offer to Joe? Why?

A necessary condition for a separating equilibrium when workers can use education as a signal of their ability is

Explain how product liability laws can reduce adverse selection.

A person who practices poisonous snake charming and does not reveal this to her health insurance company before purchasing insurance is an example of

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,we can say that

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

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?

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,all else equal,an increase in the wage differential between high- and low-skill workers leads to

If the government provides universal health insurance,what screening process will the government need?

Which of the following is an example of a hidden characteristic?

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

A firm is more likely to adopt multiple brand names for the same product when the good is a non-durable.

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

eBay has a seller reputation system to provide

If a student achieves a high SAT score,this

Cheap talk works at placing workers in the right job 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.Ten percent (10%)of all cars are lemons.Which of the following statements is true?

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

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

-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 10% chance he is lying.Given the payoff matrix in the above figure,what job level will the company offer to Joe? Why?

A necessary condition for a separating equilibrium when workers can use education as a signal of their ability is

Explain how product liability laws can reduce adverse selection.

A person who practices poisonous snake charming and does not reveal this to her health insurance company before purchasing insurance is an example of

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,we can say that

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

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?

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,all else equal,an increase in the wage differential between high- and low-skill workers leads to

If the government provides universal health insurance,what screening process will the government need?

Which of the following is an example of a hidden characteristic?

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

A firm is more likely to adopt multiple brand names for the same product when the good is a non-durable.

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