Deck 10: Information

Question 1

Information asymmetry means:

A)a situation in which one person knows more than another.
B)people have good enough information to make acceptable choices,but not complete information.
C)complete information is not possible to obtain.
D)the lack of information in a market prevents it from existing.

Answer 1

a situation in which one person knows more than another.

Question 2

An important type of information asymmetry is:

A)moral hazard.
B)information withholding.
C)advantage imbalance.
D)ethical constraint.

Answer 2

moral hazard.

Question 3

Risky transactions are those in which:

A)complete information is not possible to obtain.
B)there is an imbalance of information between buyer and seller.
C)one party to a transaction uses the other party's lack of information to their advantage.
D)one party withholds information from the other party and uses that to his advantage.

Answer 3

complete information is not possible to obtain.

Question 4

Imbalances in information can cause problems between:

A)buyers and sellers.
B)lenders and borrowers.
C)employers and employees.
D)All of these statements are true.

Question 5

People:

A)rarely have access to complete information.
B)always have access to complete information.
C)never have access to complete information.
D)often have access to complete information.

Question 6

A consequence of adverse selection is:

A)buyers may lose surplus they would have gained with more complete information.
B)sellers may lose surplus they would have gained with more complete information.
C)transactions do not take place that would have been possible if the parties had the same information.
D)All of these statements are true.

Question 7

Information asymmetry is not a problem when:

A)the wants of both parties are aligned with one another.
B)the wants of both parties are opposed to one another.
C)the constraints of both parties are identical.
D)neither party has any constraint.

Question 8

When information asymmetry is present:

A)one person knows more than another.
B)one person is likely to use the information imbalance to his advantage.
C)it can create inefficient markets.
D)All of these statements are true.

Question 9

Which of the following would be an example of a transaction later regretted because it was made with incomplete information?

A)Tim bought products that proved to be shoddy.
B)Sue lent money to an acquaintance who turned out to be a deadbeat.
C)Larry moved to a new apartment with terrible plumbing or a leaky roof.
D)All of these are good examples of incomplete information.

Question 10

When parties to a deal need information:

A)they have direct access to all of it in all transactions.
B)they will not complete the deal without getting complete information.
C)they sometimes seek it out in ways that are not obvious.
D)they always make the deal blindly.

Question 11

An important type of information asymmetry is:

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

Question 12

A consequence of adverse selection is:

A)buyers gain surplus they would have lost with complete information.
B)sellers gain surplus they would have lost with complete information.
C)transactions do not take place that would have been possible if the parties had the same information.
D)All of these statements are true.

Question 13

Which of the following is an example of a transaction that is made even though complete information is not possible?

A)Joe buys a puppy in hopes that the puppy will be his hiking companion for the next 20 years.
B)Alex buys house insurance and has never filed a claim.
C)Mike saves his money by putting it in a mutual fund.
D)All of these are examples of transactions that must be made with incomplete information.

Question 14

Adverse selection arises when:

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 15

Problems are likely to arise when:

A)one person knows more than another.
B)complete information is impossible to obtain.
C)people have good enough information to make acceptable choices.
D)None of these statements is true.

Question 16

When the parties to a deal have access to different information:

A)markets are often inefficient.
B)markets can fall apart entirely.
C)the parties still try to make the best decision with limited information.
D)All of these statements are true.

Question 17

When one person knows more than another,it creates a situation:

A)called information asymmetry.
B)in which the transaction is always regretted.
C)in which the transaction will not occur.
D)called information dominance.

Question 18

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

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 19

Information asymmetry is a problem when:

A)a buyer and seller have opposing incentives.
B)a buyer and seller have aligned incentives.
C)a market is highly efficient.
D)a market is highly inefficient.

Question 20

People:

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 21

The presence of adverse selection in a market causes:

A)some transactions fail to take place.
B)a loss of surplus.
C)market failure.
D)All of these statements are true.

Question 22

The tendency for people to behave in a riskier way or to renege on contracts when they do not face the full consequences of their actions is called:

A)moral hazard.
B)adverse selection.
C)counter information.
D)collective bargaining.

Question 23

Because of the lack of buyer's information about a perfectly functioning used car:

A)the buyer will pay less than what it's worth because of the probability it will be a lemon.
B)sellers of perfectly functioning used cars will be less likely to enter the market.
C)the market will eventually become saturated with lemons.
D)All of these statements are true.

Question 24

Moral hazard is:

A)the tendency for people to behave in a riskier way or to renege on contracts when they do not face the full consequences of their actions.
B)when people engage in behavior that is considered highly desirable by the person who bears the cost of the behavior.
C)when buyers and sellers have different information about the quality of a good or the riskiness of a situation.
D)when buyers and sellers with the same information about the quality of a good or the riskiness of a situation agree to a somewhat shady deal.

Question 25

The principal-agent problem:

A)arises from an imbalance of information.
B)is caused by the principal having imperfect information about the agent.
C)is caused by the agent being the only party with complete information.
D)All of these statements are true.

Question 26

One of the reasons the student loan repayment plan at Yale did not work was because:

A)complete information was given to both the students and the University.
B)there was an adverse selection of students into the program.
C)the moral hazard of students made them take riskier jobs.
D)the collective bargaining with the students reached an impasse.

Question 27

The principal-agent problem is:

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 28

In the principal-agent problem,the agent is:

A)a person who entrusts someone with a task.
B)a person who carries out a task on someone else's behalf.
C)a person who is in charge of a top-secret mission.
D)a person who is the source of the problem.

Question 29

Because the seller of a used car has more information than the buyer:

A)the problem of adverse selection occurs.
B)the problem of moral hazard occurs.
C)the problem of information overload occurs.
D)the problem of bargaining imbalance occurs.

Question 30

In the principal-agent problem,the principal is:

A)a person who entrusts someone with a task.
B)a person who carries out a task on someone else's behalf.
C)a person who is in charge of an educational system.
D)a person who is the source of the problem.

Question 31

The "lemons" problem is used to explain the concept of:

A)complete information.
B)adverse selection.
C)moral hazard.
D)collective bargaining.

Question 32

One way to solve the principal-agent problem would be to have:

A)the employer constantly monitor the employee's efforts.
B)the employee constantly monitor the employer's activities.
C)the employer share all management choices with employees before making decisions.
D)the employee sign a waiver of release.

Question 33

Adverse selection occurs in the used car market because:

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 34

The presence of adverse selection:

A)reduces the efficiency of markets.
B)increases the efficiency of markets.
C)does not affect the efficiency of markets.
D)makes the buyer less efficient and the seller more efficient.

Question 35

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

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

Question 36

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

A)the used car market.
B)the auto repair market.
C)the appliance market.
D)All of these are markets subject to adverse selection.

Question 37

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

A)the lemons problem.
B)the market for used cars.
C)the imbalance of information that exists between a buyer and seller of a used car.
D)All of these statements are true.

Question 38

The principal-agent problem:

A)is commonly seen in the employer-employee relationship.
B)is when the principal has less information than the agent.
C)is the source of incentive for employees to slack off.
D)All of these statements are true.

Question 39

The used car market is:

A)used to describe the "lemons" problem.
B)a perfect example of what happens when there is an imbalance of information present in a market.
C)subject to the problem of adverse selection.
D)All of these statements are true.

Question 40

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

A)the used car market.
B)the insurance market.
C)the financial market.
D)All of these statements are true.

Question 41

Moral hazard can be avoided by:

A)employers monitoring employee effort.
B)removing the asymmetric information.
C)employers incentivizing employees to maintain consistent effort.
D)All of these statements are true.

Question 42

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

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

Question 43

An approach that can be taken by someone directly involved in a transaction to solve the problems caused by information asymmetry is:

A)statistical discrimination.
B)mandating that information be shared.
C)proofing.
D)All of these are ways to solve information asymmetry.

Question 44

When a lack of information exists for parties to a deal:

A)it is always worth getting more information before making a decision.
B)the cost of acquiring information sometimes is prohibitive and not worth it.
C)an exchange will never happen.
D)the exchange will always happen anyway,with little chance of maximizing surplus.

Question 45

Moral hazard is:

A)the tendency for people to behave in a riskier way when they're insured.
B)when individuals make exchanges in the grey market.
C)when one party acts in a way that is ethically outside the norm in a market exchange.
D)when both parties act in a way that is ethically outside the norm in a market exchange.

Question 46

An example of a way employers can minimize moral hazard is:

A)monitor employees' computer activity.
B)offer bonuses for consistent productivity.
C)videotape the workplace.
D)All of these are ways to minimize moral hazard.

Question 47

Adverse selection:

A)results from unobserved characteristics of people or commodities.
B)is about the actions of people.
C)occurs after the parties have entered into an agreement.
D)All of these statements are true.

Question 48

Adverse selection is a problem that arises:

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.

Question 49

One way to solve the problems caused by information asymmetry is:

A)surfing.
B)signaling.
C)proofing.
D)All of these are solutions to information asymmetry.

Question 50

An approach that can be taken by someone directly involved in a transaction to solve the problems caused by information asymmetry is:

A)screening.
B)mandating that information be shared.
C)proofing.
D)racial discrimination.

Question 51

An approach that can be taken by someone directly involved in a transaction to solve the problems caused by information asymmetry is:

A)proofing.
B)building a reputation.
C)disclosure laws.
D)mandating that information be shared.

Question 52

Moral hazard:

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

Question 53

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

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

Question 54

A typical reason moral hazard exists in the workplace is:

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 55

It is possible to have:

A)moral hazard without adverse selection present in a market.
B)adverse selection present in a market without moral hazard.
C)both moral hazard and adverse selection present in a market.
D)All of these statements are true.

Question 56

One way to solve the problems caused by information asymmetry is:

A)screening.
B)signaling.
C)building a reputation.
D)All of these are solutions to information asymmetry.

Question 57

Adverse selection:

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 58

Moral hazard:

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 59

Moral hazard is a problem that arises:

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.

Question 60

Moral hazard:

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 61

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

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

Question 62

An employer asking for a list of references from a potential employee is an example of:

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

Question 63

A landlord requiring potential tenants to provide a rental history is an example of:

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

Question 64

An insurance company offering high-deductible and low-deductible plans is an example of:

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

Question 65

Signaling is when someone takes action to:

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)None of these statements is true.

Question 66

A way in which government can attempt to solve the problems caused by information asymmetry in the marketplace is:

A)statistical discrimination.
B)signaling.
C)mandating that information be shared.
D)All of these are ways the government deals with information asymmetry.

Question 67

Some people make purchases without complete information because:

A)they are irrational.
B)the opportunity cost of getting more information outweighs the benefit of having more information.
C)the benefit of having more information outweighs the cost of acquiring it.
D)No one makes purchases without complete information.

Question 68

An employer asking potential employees to interview with them is an example of:

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

Question 69

Screening is when someone takes action to:

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)None of these statements is true.

Question 70

A motorist choosing a high-deductible plan is an example of:

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

Question 71

A college requesting applicants to submit their high school transcripts is an example of:

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

Question 72

A drug test offered to an applicant is a method of:

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

Question 73

Taking action to reveal private information about someone else is called:

A)screening.
B)signaling.
C)discriminating.
D)illegal.

Question 74

The private information revealed during screening typically refers to information:

A)that is personal.
B)that is embarrassing.
C)that is not public.
D)that individuals generally do not want anyone to find out.

Question 75

When you are faced with a lack of information concerning a purchase,you should:

A)consider the opportunity cost of gaining more information.
B)always seek out the most information you can before making a purchase.
C)not make the purchase without complete information.
D)None of these statements is true.

Question 76

A way in which government can attempt to solve the problems caused by information asymmetry in the marketplace is:

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

Question 77

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

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

Question 78

An example of screening during the hiring process is:

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

Question 79

An employer asking potential job candidates to perform a test is an example of:

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

Question 80

If the cost of acquiring more information outweighs the benefit of having more information about a good,then we can predict:

A)the exchange will definitely not take place.
B)the exchange may take place anyway.
C)the exchange will not benefit anyone.
D)the exchange will take place,but will be regretted in the future.