Question 1

Adverse selection is a problem that arises:

Accepted Answer

A)  before the parties have entered into an agreement. 
B)  after the parties have voluntarily entered into an agreement. 
C)  either before or after the parties have entered into an agreement. 
D)  rarely in any market. 
A)  before the parties have entered into an agreement. 
B)  after the parties have voluntarily entered into an agreement. 
C)  either before or after the parties have entered into an agreement. 
D)  rarely in any market. A

Question 2

Building a good reputation:

Accepted Answer

A)  is a form of screening. 
B)  is a form of signaling. 
C)  is a form of statistical discrimination. 
D)  None of these statements is true. 
A)  is a form of screening. 
B)  is a form of signaling. 
C)  is a form of statistical discrimination. 
D)  None of these statements is true. B

Question 3

The classic example used to discuss the problem of adverse selection is:

Accepted Answer

A)  fruit and produce markets, such as lemons. 
B)  workers who shirk when their effort isn't closely monitored. 
C)  the imbalance of information that exists between a buyer and seller of a used car. 
D)  drivers with insurance who tend to drive more recklessly. 
A)  fruit and produce markets, such as lemons. 
B)  workers who shirk when their effort isn't closely monitored. 
C)  the imbalance of information that exists between a buyer and seller of a used car. 
D)  drivers with insurance who tend to drive more recklessly. C

Question 4

The principal-agent problem occurs:

Accepted Answer

A)  when the principal has less information than the agent. 
B)  when the principal has more information than the agent. 
C)  when the agent has less information than the principal. 
D)  not observed in reality. 
A)  when the principal has less information than the agent. 
B)  when the principal has more information than the agent. 
C)  when the agent has less information than the principal. 
D)  not observed in reality.

Question 5

Filling gaps in your information by generalizing based on observable characteristics is called:

Accepted Answer

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

Question 6

Statistical discrimination is when you take action to:

Accepted Answer

A)  reveal private information about someone else. 
B)  reveal one's own private information. 
C)  find out the opportunity cost of acquiring more information. 
D)  fill gaps in your information by generalizing based on observable characteristics. 
A)  reveal private information about someone else. 
B)  reveal one's own private information. 
C)  find out the opportunity cost of acquiring more information. 
D)  fill gaps in your information by generalizing based on observable characteristics.

Question 7

Adverse selection occurs in the used car market because:

Accepted Answer

A)  the seller has more information than the buyer. 
B)  the buyer has more information than the seller. 
C)  both the buyer and the seller have incomplete information. 
D)  Any of these could be the cause of adverse selection in the used car market. 
A)  the seller has more information than the buyer. 
B)  the buyer has more information than the seller. 
C)  both the buyer and the seller have incomplete information. 
D)  Any of these could be the cause of adverse selection in the used car market.

Question 8

What's the opportunity cost of taking an unfair advantage in a deal?

Accepted Answer

A)  Probably nothing, if the transaction is only taking place once. 
B)  Building a reputation for being untrustworthy if the deal is likely to be repeated. 
C)  Future deals may not occur or may come at a much higher cost. 
D)  All of these statements are true. 
A)  Probably nothing, if the transaction is only taking place once. 
B)  Building a reputation for being untrustworthy if the deal is likely to be repeated. 
C)  Future deals may not occur or may come at a much higher cost. 
D)  All of these statements are true.

Question 9

The government can help solve the information asymmetry problem by:

Accepted Answer

A)  telling less-informed parties not to participate in the market. 
B)  excluding those who do not have complete information from the market. 
C)  making markets illegal where information asymmetry is significant. 
D)  requiring the more informed party to reveal the missing information. 
A)  telling less-informed parties not to participate in the market. 
B)  excluding those who do not have complete information from the market. 
C)  making markets illegal where information asymmetry is significant. 
D)  requiring the more informed party to reveal the missing information.

Question 10

The difference between moral hazard and adverse selection is that moral hazard is about:

Accepted Answer

A)  unobserved characteristics of people occurring before parties enter into an agreement. 
B)  never happens when adverse selection is a problem. 
C)  actions that arise after the parties enter an agreement 
D)  None of these statements is true. 
A)  unobserved characteristics of people occurring before parties enter into an agreement. 
B)  never happens when adverse selection is a problem. 
C)  actions that arise after the parties enter an agreement 
D)  None of these statements is true.

Question 11

One effect of government mandating participation in the auto insurance market is it leads to:

Accepted Answer

A)  higher premiums for all participants. 
B)  lower premiums for all participants. 
C)  the collapse of the market. 
D)  free coverage for some participants. 
A)  higher premiums for all participants. 
B)  lower premiums for all participants. 
C)  the collapse of the market. 
D)  free coverage for some participants.

Question 12

A typical reason moral hazard arises in the workplace is:

Accepted Answer

A)  employees do not directly benefit from their effort, only their time spent at work. 
B)  employees get paid the same, whether they try really hard or not. 
C)  employees have no incentive to let the employer know how hard they can really work, because that might be expected of them all the time. 
D)  All of these statements are true. 
A)  employees do not directly benefit from their effort, only their time spent at work. 
B)  employees get paid the same, whether they try really hard or not. 
C)  employees have no incentive to let the employer know how hard they can really work, because that might be expected of them all the time. 
D)  All of these statements are true.

Question 13

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 14

The problem arising in the used car market can be alleviated by

Accepted Answer

A)  providing buyers with more complete information on the condition of a used car. 
B)  sellers offering warranties. 
C)  having third parties certify the condition of a used car. 
D)  All of these statements are true. 
A)  providing buyers with more complete information on the condition of a used car. 
B)  sellers offering warranties. 
C)  having third parties certify the condition of a used car. 
D)  All of these statements are true.

Question 15

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 16

Wearing a suit to a job interview is an example of a:

Accepted Answer

A)  positive signal. 
B)  negative signal. 
C)  positive screen. 
D)  negative screen. 
A)  positive signal. 
B)  negative signal. 
C)  positive screen. 
D)  negative screen.

Question 17

Problems are most likely to arise when:

Accepted Answer

A)  complete information is impossible to obtain. 
B)  people have good enough information to make acceptable choices. 
C)  one person knows more than another. 
D)  both parties lack the same information. 
A)  complete information is impossible to obtain. 
B)  people have good enough information to make acceptable choices. 
C)  one person knows more than another. 
D)  both parties lack the same information.

Question 18

Adverse selection arises when:

Accepted Answer

A)  the wants of both parties are aligned with one another. 
B)  buyers and sellers have different information about the quality of a good or the riskiness of a situation. 
C)  buyers and sellers with the same information about the quality of a good or the riskiness of a situation seek each other out. 
D)  people behave in a riskier way because they have incomplete information. 
A)  the wants of both parties are aligned with one another. 
B)  buyers and sellers have different information about the quality of a good or the riskiness of a situation. 
C)  buyers and sellers with the same information about the quality of a good or the riskiness of a situation seek each other out. 
D)  people behave in a riskier way because they have incomplete information.

Question 19

Showing up to a job interview and not knowing any information about the company is an example of a:

Accepted Answer

A)  positive signal. 
B)  negative signal. 
C)  positive screen. 
D)  negative screen. 
A)  positive signal. 
B)  negative signal. 
C)  positive screen. 
D)  negative screen.

Question 20

Moral hazard:

Accepted Answer

A)  is about the unobserved characteristics of people. 
B)  is about the unobserved actions of people. 
C)  occurs before the parties have entered into an agreement. 
D)  None of these statements is true. 
A)  is about the unobserved characteristics of people. 
B)  is about the unobserved actions of people. 
C)  occurs before the parties have entered into an agreement. 
D)  None of these statements is true.

Exam 10: Information

Adverse selection is a problem that arises:

Building a good reputation:

The classic example used to discuss the problem of adverse selection is:

The principal-agent problem occurs:

Filling gaps in your information by generalizing based on observable characteristics is called:

Statistical discrimination is when you take action to:

Adverse selection occurs in the used car market because:

What's the opportunity cost of taking an unfair advantage in a deal?

The government can help solve the information asymmetry problem by:

The difference between moral hazard and adverse selection is that moral hazard is about:

One effect of government mandating participation in the auto insurance market is it leads to:

A typical reason moral hazard arises in the workplace is:

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

The problem arising in the used car market can be alleviated by

An important type of information asymmetry is:

Wearing a suit to a job interview is an example of a:

Problems are most likely to arise when:

Adverse selection arises when:

Showing up to a job interview and not knowing any information about the company is an example of a:

Moral hazard:

Economics and Life

Specialization and Exchange

Markets

Elasticity

Efficiency

Government Intervention Microeconomics

Consumer Behavior

Behavioral Economics: A Closer Look at Decision Making

Game Theory and Strategic Thinking

Time and Uncertainty

The Costs of Production

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

The Factors of Production

International Trade

Externalities

Public Goods and Common Resources

Taxation and the Public Budget

Poverty, Inequality, and Discrimination

Political Choices

Public Policy and Choice Architecture

Filters