Deck 11: The Economics of Information

Question 1

Tim has just inherited a signed Wayne Gretzky hockey jersey,which he would like to sell.His reservation price for the jersey is $500,and he can either place an ad in the local newspaper for $10 or sell the jersey on eBay,which will charge him 5% of the selling price.The local buyer with the highest reservation price is willing to pay $750 at most,while the two eBay bidders with the highest reservation prices are willing to pay $1,200 and $1,000,respectively.(Note that,in an eBay auction,the bidder with the highest reservation price wins,and the price paid is the reservation price of the second-highest bidder. )
Refer to the information above.If Tim advertises his jersey in the local newspaper and sells it to the local buyer with the highest reservation price,his economic surplus will be

A) $240.
B) $490.
C) $500.
D) $740.
E) $750.

Answer 1

$240.

Question 2

Tim has just inherited a signed Wayne Gretzky hockey jersey,which he would like to sell.His reservation price for the jersey is $500,and he can either place an ad in the local newspaper for $10 or sell the jersey on eBay,which will charge him 5% of the selling price.The local buyer with the highest reservation price is willing to pay $750 at most,while the two eBay bidders with the highest reservation prices are willing to pay $1,200 and $1,000,respectively.(Note that,in an eBay auction,the bidder with the highest reservation price wins,and the price paid is the reservation price of the second-highest bidder. )
Refer to the information above.If Tim sells his jersey on eBay,the winning bidder's economic surplus will be ________.

A) $450.
B) $250.
C) $200.
D) $50.
E) $0.

Answer 2

$200.

Question 3

Tim has just inherited a signed Wayne Gretzky hockey jersey,which he would like to sell.His reservation price for the jersey is $500,and he can either place an ad in the local newspaper for $10 or sell the jersey on eBay,which will charge him 5% of the selling price.The local buyer with the highest reservation price is willing to pay $750 at most,while the two eBay bidders with the highest reservation prices are willing to pay $1,200 and $1,000,respectively.(Note that,in an eBay auction,the bidder with the highest reservation price wins,and the price paid is the reservation price of the second-highest bidder. )
Refer to the information above.In this example,eBay has ________ economic surplus by allowing an item to end up in the hands of someone who values it ________ the person who otherwise would have bought it.

A) increased;more than
B) increased;less than
C) not changed;the same as
D) decreased;more than
E) decreased;less than

Answer 3

increased;more than

Question 4

Assume that the local electronics store is charging $200 for 2 GHz AMD Athlon microprocessors,while on the Internet,they can be purchased for $180.Part of this price difference is due to

A) the information one can get at the local store.
B) the higher-quality CPU at the local store.
C) the lower wholesale price at the local store.
D) random chance.
E) the lower input costs of the local store.

Question 5

Internet retailers usually sell goods for ________ prices than full-service retail stores,because Internet retailers tend to have ________ costs for sales personnel and ________ costs for rent.

A) higher;higher;higher
B) higher;lower;lower
C) lower;higher;higher
D) lower;lower;lower
E) lower;lower;higher

Question 6

The economic role of sales agents is ________ that of production workers.

A) much more important than
B) much less important than
C) completely different from
D) essentially the same as
E) unrelated to

Question 7

The difference between the price of electronic equipment in a retail store and the price at an Internet store reflects,in part,

A) the extent to which sales agents drive the price up for extra profit.
B) the lack of competition between retail stores and online stores.
C) the value of personal attention and support at the retail store.
D) excessive markup.
E) that online stores do not maximize profit.

Question 8

Tim has just inherited a signed Wayne Gretzky hockey jersey,which he would like to sell.His reservation price for the jersey is $500,and he can either place an ad in the local newspaper for $10 or sell the jersey on eBay,which will charge him 5% of the selling price.The local buyer with the highest reservation price is willing to pay $750 at most,while the two eBay bidders with the highest reservation prices are willing to pay $1,200 and $1,000,respectively.(Note that,in an eBay auction,the bidder with the highest reservation price wins,and the price paid is the reservation price of the second-highest bidder. )
Refer to the information above.If Tim sells his jersey on eBay,then total economic surplus will be ________ higher than if he had sold it through advertising in the local newspaper.

A) $450
B) $410
C) $260
D) $250
E) $200

Question 9

The extra expense of shopping at a full-service retail store instead of through an Internet retailer is most likely to be a good idea when the

A) customer has extra money to spend.
B) customer does not know which is the right product for him.
C) customer has time to shop around.
D) differences between various products are small.
E) customer knows exactly which product is the right one for him.

Question 10

Tim has just inherited a signed Wayne Gretzky hockey jersey,which he would like to sell.His reservation price for the jersey is $500,and he can either place an ad in the local newspaper for $10 or sell the jersey on eBay,which will charge him 5% of the selling price.The local buyer with the highest reservation price is willing to pay $750 at most,while the two eBay bidders with the highest reservation prices are willing to pay $1,200 and $1,000,respectively.(Note that,in an eBay auction,the bidder with the highest reservation price wins,and the price paid is the reservation price of the second-highest bidder. )
Refer to the information above.If Tim sells his jersey on eBay,the total surplus to both Tim and the winning bidder will be ________.

A) $650.
B) $950.
C) $1,000.
D) $1,150.
E) $1,200.

Question 11

MC and MB refer to the marginal cost and marginal benefit,respectively,of obtaining additional information.
Refer to the diagram above.If the original curves are MB and MC,the equilibrium value and quantity of information are

A) $V2 per unit and A2 units.
B) $V3 per unit and A2 units.
C) $V1 per unit and A1 units.
D) $V2 per unit and A1 units.
E) $V3 per unit and A1 units.

Question 12

Tim has just inherited a signed Wayne Gretzky hockey jersey,which he would like to sell.His reservation price for the jersey is $500,and he can either place an ad in the local newspaper for $10 or sell the jersey on eBay,which will charge him 5% of the selling price.The local buyer with the highest reservation price is willing to pay $750 at most,while the two eBay bidders with the highest reservation prices are willing to pay $1,200 and $1,000,respectively.(Note that,in an eBay auction,the bidder with the highest reservation price wins,and the price paid is the reservation price of the second-highest bidder. )
Refer to the information above.If Tim sells his jersey on eBay,it will sell for ________ and Tim will receive ________ after the eBay commission is paid.

A) $1,200;$1,150
B) $1,200;$1,140
C) $1,000;$950
D) $1,000;$900
E) $750;$740

Question 13

Sales agents and other intermediaries tend to __________ total economic surplus by __________.

A) reduce;raising prices
B) reduce;giving misleading information
C) increase;raising prices
D) increase;matching sellers with buyers
E) reduce;adding nothing of value

Question 14

Dan owns an autographed copy of a Lady Gaga CD.If he sells it locally,he can get $100.If he puts it on eBay,he can get $500,of which he will pay $50 to eBay.eBay has therefore caused total economic surplus to be

A) unchanged.
B) $500 higher.
C) $50 higher.
D) $350 higher.
E) $400 higher.

Question 15

Which of the following is NOT true about the Internet's impact on the market for information?

A) The Internet has reduced the time spent searching for the lowest price.
B) The Internet has greatly expanded the number of searches that can be performed.
C) It is easy to conduct repeated searches.
D) The quality of information available online is uniformly good.
E) The quantity of information available online is very large.

Question 16

Tim has just inherited a signed Wayne Gretzky hockey jersey,which he would like to sell.His reservation price for the jersey is $500,and he can either place an ad in the local newspaper for $10 or sell the jersey on eBay,which will charge him 5% of the selling price.The local buyer with the highest reservation price is willing to pay $750 at most,while the two eBay bidders with the highest reservation prices are willing to pay $1,200 and $1,000,respectively.(Note that,in an eBay auction,the bidder with the highest reservation price wins,and the price paid is the reservation price of the second-highest bidder. )
Refer to the information above.If Tim advertises his jersey in the local newspaper and sells it to the local buyer with the highest reservation price,the total surplus to both Tim and the winning bidder will be

A) $240.
B) $490.
C) $500.
D) $740.
E) $750.

Question 17

Tim has just inherited a signed Wayne Gretzky hockey jersey,which he would like to sell.His reservation price for the jersey is $500,and he can either place an ad in the local newspaper for $10 or sell the jersey on eBay,which will charge him 5% of the selling price.The local buyer with the highest reservation price is willing to pay $750 at most,while the two eBay bidders with the highest reservation prices are willing to pay $1,200 and $1,000,respectively.(Note that,in an eBay auction,the bidder with the highest reservation price wins,and the price paid is the reservation price of the second-highest bidder. )
Refer to the information above.If Tim sells his jersey on eBay,his economic surplus will be ________.

A) $700.
B) $650.
C) $500.
D) $450.
E) $250.

Question 18

When collecting information about some good or service,many people first ask their friends and family members about their experiences.This is because

A) one can trust them to tell the truth.
B) it is usually the least costly information.
C) it is always the best information.
D) their credibility is better than that of a salesclerk.
E) their credibility is better than that of a company Web site.

Question 19

Tim has just inherited a signed Wayne Gretzky hockey jersey,which he would like to sell.His reservation price for the jersey is $500,and he can either place an ad in the local newspaper for $10 or sell the jersey on eBay,which will charge him 5% of the selling price.The local buyer with the highest reservation price is willing to pay $750 at most,while the two eBay bidders with the highest reservation prices are willing to pay $1,200 and $1,000,respectively.(Note that,in an eBay auction,the bidder with the highest reservation price wins,and the price paid is the reservation price of the second-highest bidder. )
Refer to the information above.If Tim advertises his jersey in the local newspaper and sells it to the local buyer with the highest reservation price,the winning bidder's economic surplus will be

A) $0.
B) $490.
C) $500.
D) $740.
E) $750.

Question 20

MC and MB refer to the marginal cost and marginal benefit,respectively,of obtaining additional information.
Refer to the diagram above.The reason the marginal benefit of information curve is downward-sloping is that

A) some information is useless.
B) most information is useless.
C) information is subject to the law of diminishing marginal returns.
D) there is only so much to learn about a product.
E) consumers prefer blissful ignorance.

Question 21

The relevance of the expected value of the consumer's search decision is that

A) the outcome of a particular search is certain.
B) one may not be able to purchase the good after it is found.
C) the outcome of a particular search is uncertain.
D) one always knows the value of the next search.
E) one only continues to search if the expected value is positive.

Question 22

Kyle is considering the following gamble: a 70% chance of winning $2,000 and a 30% chance of losing $2,000.This gamble would be classified as a(n)

A) fair gamble.
B) unfair gamble.
C) nearly-fair gamble.
D) worse-than-fair gamble.
E) better-than-fair gamble.

Question 23

A risk-averse individual will

A) never accept any gamble under any circumstances.
B) accept a fair gamble,but not a better-than-fair gamble.
C) reject all gambles.
D) accept only better-than-fair gambles,if he accepts any at all.
E) only choose certain events.

Question 24

MC and MB refer to the marginal cost and marginal benefit,respectively,of obtaining additional information.
Refer to the diagram above.The growth of access to the Internet would cause the

A) marginal cost curve to shift from MC to MC2.
B) marginal benefit curve to shift from MB to MB1.
C) marginal cost curve to shift from MC2 to MC.
D) marginal benefit curve to shift from MB1 to MB.
E) equilibrium amount of information to decline.

Question 25

The sum of the possible outcomes of a gamble multiplied by their respective probabilities is

A) a fair gamble.
B) the variance of the gamble.
C) a better-than-fair gamble.
D) the mode of the gamble.
E) the expected value of the gamble.

Question 26

The increased technological sophistication of consumer goods would tend to

A) shift the marginal cost of information curve to the right.
B) shift the marginal cost of information curve to the left.
C) shift the marginal benefit of information curve to the right.
D) shift the marginal benefit of information curve to the left.
E) have no effect on the marginal cost or marginal benefit of information.

Question 27

Suppose Ginger is going to buy both a house and a new dishwasher.Assuming that the cost of searching for both is the same,one can predict that Ginger will

A) spend more time searching for the house than the dishwasher.
B) spend more time searching for the dishwasher than the house.
C) spend equal amounts of time searching for the dishwasher and the house.
D) buy the first house and the first dishwasher she encounters.
E) buy the first house she encounters and the third dishwasher.

Question 28

For a gamble with a 20% chance of winning $100 and an 80% chance of losing $25,Regis takes the gamble and Bryan rejects it.One can infer that

A) both Regis and Bryan are risk-averse.
B) neither Regis nor Bryan is risk-averse.
C) Regis is risk-averse and Bryan is risk-neutral.
D) Bryan is risk-averse and Regis is risk-neutral.
E) both Regis and Bryan are risk-neutral.

Question 29

The optional amount of information to acquire before making a purchase is

A) zero.
B) as much as technically possible.
C) the amount where the total cost of acquiring information equals the total benefit.
D) independent of the expenditure to be made.
E) the amount where the marginal cost of acquiring information equals the marginal benefit.

Question 30

A risk-neutral individual will

A) accept only better-than-fair gambles.
B) accept fair gambles but reject better-than-fair ones.
C) accept any gamble with an expected value of zero or more.
D) accept only gambles with an expected value of one or more.
E) see risk as neither good nor bad.

Question 31

Terri decides to play the lottery.She has a 1% probability of winning $1000 and a 99% probability of winning $0.The expected value of her decision to play is

A) $1,000.
B) $100.
C) $10.
D) $1.
E) $0.

Question 32

If an event has an expected value of zero,the event is called a(n)

A) better-than-fair gamble.
B) at-most-fair gamble.
C) zero gamble.
D) fair gamble.
E) unfair gamble.

Question 33

Dave is risk-averse and Scott is risk-neutral.Each is confronted with the following gamble: win $5000 with a probability of 65% or lose $9000 with a probability of 35%.One can predict that

A) both will definitely accept the gamble.
B) only Scott will accept the gamble.
C) only Dave will accept the gamble.
D) neither will accept the gamble.
E) Scott will accept the gamble and Dave might.

Question 34

Frank is considering moving to Calgary.There is a 70% chance that he will find a job that pays $1,000 more than what he currently earns and a 30% chance he will find one that pays $3000 less.The expected value of moving to Calgary is

A) -$200.
B) $200.
C) $700.
D) $900.
E) $1,000.

Question 35

Assume that all manufacturers double the length of their warranties.This would cause

A) the marginal benefit of information curve to shift to the left.
B) the marginal cost of information curve to shift to the left.
C) the marginal benefit of information curve to shift to the right.
D) the marginal cost of information curve to shift to the right.
E) no change in either the marginal cost or the marginal benefit of information.

Question 36

The expected value of a gamble is the

A) value of the best outcome.
B) sum of the possible outcomes divided by the number of possible outcomes.
C) value one hopes will occur.
D) value of the worst outcome.
E) sum of the possible outcomes multiplied by the probability of the possible outcomes.

Question 37

Phil is offered the following gamble: a 60% chance of winning $1,000 and a 40% chance of losing $1,500.This gamble is a(n)

A) unfair gamble.
B) fair gamble.
C) better-than-fair gamble.
D) worse-than-fair gamble.
E) almost-fair gamble.

Question 38

An event with an expected value greater than zero is called a(n)

A) better-than-fair gamble.
B) worse-than-fair gamble.
C) fair gamble.
D) very fair gamble.
E) significantly better-than-fair gamble.

Question 39

Seka and Jill move to Toronto at the same time,and both wish to find apartments to rent.Seka is staying with her aunt,while Jill is staying at a motel.One can predict that

A) Seka and Jill will spend the same amount of time searching.
B) Jill will search longer than Seka.
C) Seka will search longer than Jill.
D) Jill will have better information.
E) it is impossible to compare their search times.

Question 40

MC and MB refer to the marginal cost and marginal benefit,respectively,of obtaining additional information.
Refer to the diagram above.The reason the marginal cost curve for information is upward-sloping is that

A) most information is false.
B) consumers start with the least expensive sources and progress to more expensive sources.
C) there is only so much to learn about a product.
D) some information is useless.
E) most information is misleading.

Question 41

Online dating sites are an attempt to

A) increase the marginal benefit of searching for love.
B) reduce the marginal benefit of searching for love.
C) reduce the marginal cost of searching for love.
D) increase the marginal cost of searching for love.
E) help the chronically lonely.

Question 42

The marginal cost of collecting information

A) rises as more information is collected.
B) falls as more information is collected.
C) is now zero because of the Internet.
D) is independent of the size of the expenditure.
E) is so small that many consumers are experts on most of what they buy.

Question 43

The probability of earning a score of 90 on this test is 20%,the probability of earning a score of 80 is 60%,and the probability of earning a score of 70 is 20%.The correct formula for the expected value of this test is thus

A) (0.2)(90)+ (0.6)(80)+ (0.2)(70).
B) (20)(90)+ (60)(80)+ (20)(70).
C) (90 + 80 + 70)/3.
D) (0.33)(90)+ (0.33)(80)+ (0.33)(70).
E) unknown.

Question 44

The probability that Juanita will like the movie she is going to see is 90% and has a value of $40.Not liking the movie has a value of -$10.The expected value of going to the movie is

A) $40.
B) $36.
C) $35.
D) $30.
E) $27.

Question 45

Vinnie is looking for an apartment in Regina.In Regina,75% of the two-bedroom,one-bath apartments cost $800 a month and 25% cost $600.Vinnie would prefer to find an apartment that rents for $600.The marginal cost of looking at the first apartment is $15,the marginal cost of looking at the second apartment is $30,and so on.
Refer to the information above.At most,Vinnie will be willing to look at _____ apartments.

A) 4
B) 3
C) 2
D) 1
E) an indeterminate number of

Question 46

The reason that landlords and tenants sign lease agreements is to

A) protect landlords from losing tenants to lower-priced apartments.
B) ensure that landlords can ignore problems in apartments.
C) protect tenants from losing apartments if someone offers to pay more.
D) fulfill a legal requirement.
E) protect both landlords and tenants from the other one finding a better deal.

Question 47

The optimal amount of information to obtain for any purchase is

A) zero.
B) the amount where the marginal benefit and marginal cost of additional information are equal.
C) independent of the size of the expenditure.
D) to get advice from friends and family.
E) the amount where the total benefit and total cost of additional information are equal.

Question 48

Vinnie is looking for an apartment in Regina.In Regina,75% of the two-bedroom,one-bath apartments cost $800 a month and 25% cost $600.Vinnie would prefer to find an apartment that rents for $600.The marginal cost of looking at the first apartment is $15,the marginal cost of looking at the second apartment is $30,and so on.
Refer to the information above.Suppose that Vinnie discovers that the marginal cost of looking at an extra apartment is $25,rather than $15.He will now look at a maximum of __________ apartments.

A) 0
B) 1
C) 2
D) 3
E) 4

Question 49

In the context of search theory,the legal contract of marriage exists to

A) fulfill religious requirements.
B) make men and women respectable.
C) solve the commitment problem.
D) stifle the growth potential of women.
E) ensure reproduction.

Question 50

Vinnie is looking for an apartment in Regina.In Regina,75% of the two-bedroom,one-bath apartments cost $800 a month and 25% cost $600.Vinnie would prefer to find an apartment that rents for $600.The marginal cost of looking at the first apartment is $15,the marginal cost of looking at the second apartment is $30,and so on.
Refer to the information above.The expected benefit to Vinnie of searching for an apartment is

A) $400.
B) $200.
C) $100.
D) $50.
E) $25.

Question 51

Given the functions for the marginal cost and marginal benefit of collecting information,

A) there is no equilibrium amount.
B) consumers tend to become experts about most goods.
C) consumers remain completely ignorant about most goods.
D) the equilibrium is somewhere between complete ignorance and becoming an expert.
E) it always pays to get more information.

Question 52

Bob is risk-averse and needs to hire an attorney.If the cost of searching is zero,Bob should

A) interview all attorneys.
B) hire the first attorney interviewed.
C) hire the attorney with ill-fitting clothes.
D) continue searching if the expected value of another interview is zero or positive.
E) continue searching if the expected value of another interview is positive.

Question 53

If the expected value of the next apartment in a search is zero,then

A) all persons will consider seeing the next apartment.
B) only risk-averse persons will consider seeing the next apartment.
C) only risk-neutral persons will consider seeing the next apartment.
D) no one will consider seeing the next apartment.
E) only risk-loving persons will consider seeing the next apartment.

Question 54

Calculating the expected value of an outcome is necessary when the outcome

A) already determined.
B) harmful.
C) beneficial.
D) uncertain.
E) does not depend on outside forces.

Question 55

Vinnie is looking for an apartment in Regina.In Regina,75% of the two-bedroom,one-bath apartments cost $800 a month and 25% cost $600.Vinnie would prefer to find an apartment that rents for $600.The marginal cost of looking at the first apartment is $15,the marginal cost of looking at the second apartment is $30,and so on.
Refer to the information above.Suppose that Vinnie discovers that the distribution of high-price versus low-price apartments is not 75% and 25%,but 60% and 40%.He will now be willing to look at a maximum of __________ apartments.

A) 6
B) 5
C) 4
D) 3
E) 2

Question 56

The difference between the decision to eat another apple and the decision to look at another apartment is that

A) the apple decision has no cost.
B) the benefit of either decision is uncertain.
C) the benefit of either decision is certain.
D) the apartment decision has no cost.
E) the benefit of the apartment decision is uncertain.

Question 57

The optimal number of searches

A) increases for goods with high search costs.
B) decreases for goods with large price variations.
C) increases for goods where feature variation is low.
D) increases for goods with large price variations.
E) is unrelated to the cost of searching.

Question 58

In any situation where searching is required,it is likely that

A) consumers will search too much.
B) all consumers will tend to search about the same amount.
C) agreements,formal or informal,will develop to solve the commitment problem.
D) producers will provide too much information.
E) consumers will examine each and every one of their alternatives.

Question 59

Vinnie is looking for an apartment in Regina.In Regina,75% of the two-bedroom,one-bath apartments cost $800 a month and 25% cost $600.Vinnie would prefer to find an apartment that rents for $600.The marginal cost of looking at the first apartment is $15,the marginal cost of looking at the second apartment is $30,and so on.
Refer to the information above.The marginal cost of looking at the fourth apartment is

A) $0.
B) $15.
C) $45.
D) $50.
E) $60.

Question 60

The marginal benefit of additional information

A) rises as more information is collected.
B) is independent of the size of the expenditure.
C) tends to be smaller for expensive items,such as a car.
D) is constant.
E) falls as more information is collected.

Question 61

Imagine a world in which landlords always fix problems quickly,while tenants never damage property and always pay their rent on time.In such a world,

A) lease agreements would still exist to solve the commitment problem.
B) lease agreements would be unnecessary.
C) lease agreements would only serve the interests of landlords.
D) lease agreements would only serve the interests of tenants.
E) rents would rise.

Question 62

A 1% chance of winning $700 and a 99% chance of losing $7.07 would be classified as a(n)

A) better-than-fair gamble.
B) expected value.
C) fair gamble.
D) one that a risk-averse person would take.
E) unfair gamble.

Question 63

Alex,a risk-neutral woman,is looking for an apartment.The distribution of apartments is as follows: 70% rent for $700 per month,20% rent for $600 per month,and 10% rent for $500 per month.All else constant,Alex would prefer an apartment that rents for $500.Alex's first search costs $10,and her cost of searching subsequently rises by $10 with each search.
Refer to the information above.Suppose the cost of searching for Alex changes from $10 per search to $20 per search.Her optimal number of searches now is

A) 5.
B) 4.
C) 3.
D) 2.
E) 1.

Question 64

A better-than-fair gamble is one in which

A) the probability of winning exceeds the probability of losing.
B) the expected value is positive.
C) the outcome of winning exceeds the outcome of losing.
D) the expected value is zero.
E) the expected value of losing is zero rather than negative.

Question 65

Carl has two choices: a 50% chance of winning $20 and a 50% chance of losing $20,versus a 20% chance of winning $100 and an 80% chance of losing $20.Which choice has the larger expected value?

A) Both choices have the same expected value and thus are equally attractive.
B) The 50%-50% choice.
C) Both choices have negative expected values and neither should be selected.
D) The 20%-80% choice.
E) Both choices have the same expected value,but the 50%-50% choice is better because the chance of a payoff is greater.

Question 66

A 65% chance of winning $10 and a 35% chance of losing $5 would be classified as a(n)

A) better-than-fair gamble.
B) worse-than-fair gamble.
C) trivial gamble.
D) fair gamble.
E) expected value.

Question 67

A fair gamble is one in which the

A) probabilities of winning or losing are each 50%.
B) expected value is greater than zero.
C) outcomes of winning or losing are the same.
D) expected value is zero.
E) probabilities of winning or losing add up to one.

Question 68

Which of following would NOT increase the optimal amount of searching for information about a product?

A) The cost of searching is low.
B) The price of the product varies greatly.
C) The quality of the product varies greatly.
D) The product is highly standardized.
E) Some retailers are offering rebates.

Question 69

When the cost of searching increases,

A) fewer searches occur.
B) the number of searches remains constant.
C) more searches occur.
D) worse searches occur.
E) the benefit of searching falls.

Question 70

In general,risk-averse people will search

A) more than risk-neutral people.
B) the same amount as risk-neutral people.
C) significantly more than risk-neutral people.
D) more or less than risk-neutral people.
E) less than risk-neutral people.

Question 71

Identical one-bedroom apartments can be rented either for one week at $100 or for one month at $375.Is this rational?

A) No,everyone will pick the one-month option.
B) No,the landlord is not maximizing profit.
C) Yes,it lessens the amount of searching the landlord does for tenants.
D) Yes,it lessens the amount of searching the tenant does for living space.
E) Yes,it lessens the amount of searching for both landlord and tenant.

Question 72

When the expected value of searching increases,

A) fewer searches occur.
B) the number of searches does not change.
C) more searches occur.
D) better searches occur.
E) the cost of searching falls.

Question 73

If a gamble has an expected value of $10,then one can predict that

A) only risk-averse persons will take the gamble.
B) only risk-neutral persons will take the gamble.
C) all risk-neutral persons and some risk-averse persons will take the gamble.
D) some risk-neutral persons will take the gamble.
E) all risk-neutral and risk-averse persons will take the gamble.

Question 74

Several Internet Web sites allow the consumer to input a product,and a list of suppliers with their price for the product is displayed.This

A) increases the benefit of searching.
B) increases the free-rider problem.
C) harms the Internet sellers.
D) reduces the cost of searching.
E) reduces the benefit of searching.

Question 75

On the day of the midterm exam,one would expect the optimal number of searches for a parking space to __________ because __________.

A) decrease;the marginal benefit is lower
B) increase;the marginal cost is lower
C) increase;the marginal benefit is higher
D) decrease;the marginal cost is lower
E) be unchanged;neither the cost nor the benefit has changed

Question 76

If a gamble is taken by a risk-averse person,then one can infer that

A) all risk-neutral people will also take the gamble.
B) no risk-neutral people will take the gamble.
C) no other risk-averse person will take the gamble.
D) some,but not all,risk-neutral people will take the gamble.
E) all risk-averse people will take the gamble.

Question 77

Alex,a risk-neutral woman,is looking for an apartment.The distribution of apartments is as follows: 70% rent for $700 per month,20% rent for $600 per month,and 10% rent for $500 per month.All else constant,Alex would prefer an apartment that rents for $500.Alex's first search costs $10,and her cost of searching subsequently rises by $10 with each search.
Refer to the information above.Alex's optimal number of searches is

A) 5.
B) 4.
C) 3.
D) 2.
E) 1.

Question 78

Alex,a risk-neutral woman,is looking for an apartment.The distribution of apartments is as follows: 70% rent for $700 per month,20% rent for $600 per month,and 10% rent for $500 per month.All else constant,Alex would prefer an apartment that rents for $500.Alex's first search costs $10,and her cost of searching subsequently rises by $10 with each search.
Refer to the information above.The expected values of Alex's first five searches are,in order from first to fifth,

A) 40,40,40,40,40.
B) 30,30,30,30,30.
C) 80,70,60,50,40.
D) 30,20,10,0,-10.
E) indeterminate.

Question 79

William is considering the following offer: a 50% chance of winning $10 and a 50% chance of losing $9.The expected value of this gamble is

A) $10.
B) $5.
C) $1.50.
D) $1.
E) $0.50.

Question 80

Alex,a risk-neutral woman,is looking for an apartment.The distribution of apartments is as follows: 70% rent for $700 per month,20% rent for $600 per month,and 10% rent for $500 per month.All else constant,Alex would prefer an apartment that rents for $500.Alex's first search costs $10,and her cost of searching subsequently rises by $10 with each search.
Refer to the information above.The expected value of rent in this apartment market is

A) $700.
B) $660.
C) $600.
D) $500.
E) indeterminate.