Question 1

Generalizing using statistical discrimination is:

Accepted Answer

A) a rational response to being on the wrong end of an information asymmetry. 
B) an irrational response and always leads to loss of surplus. 
C) a rational response,although government always steps in to prevent it. 
D) All of these statements are true. 
A) a rational response to being on the wrong end of an information asymmetry. 
B) an irrational response and always leads to loss of surplus. 
C) a rational response,although government always steps in to prevent it. 
D) All of these statements are true.

Question 2

Moral hazard:

Accepted Answer

A) always happens when adverse selection is a problem. 
B) never happens when adverse selection is a problem. 
C) can happen when adverse selection is a problem. 
D) None of these statements is true. 
A) always happens when adverse selection is a problem. 
B) never happens when adverse selection is a problem. 
C) can happen when adverse selection is a problem. 
D) None of these statements is true.

Question 3

Governments choose to mandate participation in a program,like auto insurance,when:

Accepted Answer

A) the functioning of those markets is thought to be in the public interest. 
B) the market would not otherwise exist. 
C) the market would exist illegally. 
D) None of these statements is true. 
A) the functioning of those markets is thought to be in the public interest. 
B) the market would not otherwise exist. 
C) the market would exist illegally. 
D) None of these statements is true.

Question 4

An example of a market subject to adverse selection would be:

Accepted Answer

A) the market for soft drinks. 
B) the insurance market. 
C) the market for lawn mowers. 
D) the market for sunglasses. 
A) the market for soft drinks. 
B) the insurance market. 
C) the market for lawn mowers. 
D) the market for sunglasses.

Question 5

An important type of information asymmetry is:

Accepted Answer

A) adverse selection. 
B) ethical constraint. 
C) advantage imbalance. 
D) information hazard. 
A) adverse selection. 
B) ethical constraint. 
C) advantage imbalance. 
D) information hazard.

Question 6

Certifying a used car through a brand dealership:

Accepted Answer

A) corrects an inefficiency in the market. 
B) allows more transactions to take place that are valuable to buyers and sellers. 
C) credibly signals which cars are not lemons. 
D) All of these statements are true. 
A) corrects an inefficiency in the market. 
B) allows more transactions to take place that are valuable to buyers and sellers. 
C) credibly signals which cars are not lemons. 
D) All of these statements are true.

Question 7

Adverse selection:

Accepted Answer

A) relates to unobserved characteristics of people or goods and occurs before the parties have entered into an agreement. 
B) is about actions and occurs after the parties have voluntarily entered into an agreement. 
C) is always present when moral hazard arises. 
D) All of these statements are true. 
A) relates to unobserved characteristics of people or goods and occurs before the parties have entered into an agreement. 
B) is about actions and occurs after the parties have voluntarily entered into an agreement. 
C) is always present when moral hazard arises. 
D) All of these statements are true.

Question 8

People:

Accepted Answer

A) often have good enough information to make acceptable choices. 
B) are sometimes truly under-informed in ways that matter. 
C) rarely have access to complete information. 
D) All of these statements are true. 
A) often have good enough information to make acceptable choices. 
B) are sometimes truly under-informed in ways that matter. 
C) rarely have access to complete information. 
D) All of these statements are true.

Question 9

Governments can use public regulation to help solve information problems by:

Accepted Answer

A) mandating participation in a market or program. 
B) making screening illegal. 
C) mandating employers build a reputation before screening. 
D) All of these statements are true. 
A) mandating participation in a market or program. 
B) making screening illegal. 
C) mandating employers build a reputation before screening. 
D) All of these statements are true.

Question 10

All food bought in the United States has an ingredient list on the packaging.This is an example of:

Accepted Answer

A) screening. 
B) signaling. 
C) requiring the more informed party to reveal missing information. 
D) building a reputation. 
A) screening. 
B) signaling. 
C) requiring the more informed party to reveal missing information. 
D) building a reputation.

Question 11

Disclosure laws:

Accepted Answer

A) are an example of how government attempts to solve information asymmetry in markets. 
B) are an example of how government attempts to screen unethical businesses out of the marketplace. 
C) are an example of how government forces businesses to signal to consumers if they are credible. 
D) are a way businesses can build their reputation. 
A) are an example of how government attempts to solve information asymmetry in markets. 
B) are an example of how government attempts to screen unethical businesses out of the marketplace. 
C) are an example of how government forces businesses to signal to consumers if they are credible. 
D) are a way businesses can build their reputation.

Question 12

Careless drivers being more likely to buy auto insurance voluntarily is an example of:

Accepted Answer

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

Question 13

Taking action to reveal one's own private information is called:

Accepted Answer

A) screening. 
B) signaling. 
C) statistical discrimination. 
D) proofing. 
A) screening. 
B) signaling. 
C) statistical discrimination. 
D) proofing.

Question 14

Statistical discrimination:

Accepted Answer

A) can limit the opportunities of individuals just because they happen to belong to a certain group of people. 
B) is a rational response to information asymmetry. 
C) is not always a legal solution to information asymmetry. 
D) All of these statements are true. 
A) can limit the opportunities of individuals just because they happen to belong to a certain group of people. 
B) is a rational response to information asymmetry. 
C) is not always a legal solution to information asymmetry. 
D) All of these statements are true.

Question 15

Drivers with auto insurance being more likely to be careless is an example of:

Accepted Answer

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

Question 16

An example of screening during the hiring process is:

Accepted Answer

A) just asking for the information. 
B) an interview. 
C) checking references. 
D) All of these are ways to screen candidates. 
A) just asking for the information. 
B) an interview. 
C) checking references. 
D) All of these are ways to screen candidates.

Question 17

When people are fully informed about the choices that they and other relevant economic actors face,we say they:

Accepted Answer

A) have complete information. 
B) will always try to hide that information to gain advantage. 
C) will always be willing to go through with the transaction. 
D) have relevant information. 
A) have complete information. 
B) will always try to hide that information to gain advantage. 
C) will always be willing to go through with the transaction. 
D) have relevant information.

Question 18

The government can help solve the information asymmetry problem by:

Accepted Answer

A) providing the missing information to the less-informed party. 
B) requiring the more informed party to reveal the missing information. 
C) finding ways to make the same amount of information known to both parties. 
D) All of these statements are true. 
A) providing the missing information to the less-informed party. 
B) requiring the more informed party to reveal the missing information. 
C) finding ways to make the same amount of information known to both parties. 
D) All of these statements are true.

Question 19

Building a good reputation in the marketplace:

Accepted Answer

A) can be a very valuable signal. 
B) can take a long time. 
C) can be costly. 
D) All of these statements are true. 
A) can be a very valuable signal. 
B) can take a long time. 
C) can be costly. 
D) All of these statements are true.

Question 20

Agreeing to take a drug test offered by a potential employer is a method of:

Accepted Answer

A) signaling. 
B) screening. 
C) statistical discrimination. 
D) building a reputation. 
A) signaling. 
B) screening. 
C) statistical discrimination. 
D) building a reputation.

Exam 10: Information

Generalizing using statistical discrimination is:

Moral hazard:

Governments choose to mandate participation in a program,like auto insurance,when:

An example of a market subject to adverse selection would be:

An important type of information asymmetry is:

Certifying a used car through a brand dealership:

Adverse selection:

People:

Governments can use public regulation to help solve information problems by:

All food bought in the United States has an ingredient list on the packaging.This is an example of:

Disclosure laws:

Careless drivers being more likely to buy auto insurance voluntarily is an example of:

Taking action to reveal one's own private information is called:

Statistical discrimination:

Drivers with auto insurance being more likely to be careless is an example of:

An example of screening during the hiring process is:

When people are fully informed about the choices that they and other relevant economic actors face,we say they:

The government can help solve the information asymmetry problem by:

Building a good reputation in the marketplace:

Agreeing to take a drug test offered by a potential employer is a method of:

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