Deck 17: Uncertainty and Asymmetric Information

Question 1

For most people, as their income increases, their utility from that income ________ at a(n) ________ rate.

A) increases; increasing
B) decreases; decreasing
C) increases; decreasing
D) decreases; increasing

Answer 1

C

Question 2

Mark has two job offers when he graduates from college. Mark views the offers as identical, except for the salary terms. The first offer is at a fixed annual salary of $50,000. The second offer is at a fixed salary of $20,000 plus a possible bonus of $60,000. Mark believes that he has a 50-50 chance of earning the bonus. If Mark takes the offer that maximizes his expected utility and is risk neutral, which job offer will he choose?

A) Mark will take the first offer.
B) Mark will take the second offer.
C) Mark is indifferent between the offers-both yield the same expected utility.
D) Indeterminate from the given information.

Answer 2

C

Question 3

Refer to the data provided in Table 17.2 below to answer the following questions. The table shows the relationship between income and utility for Sue.
Table 17.2
$$\begin{array} { | c | c | } \hline \text { Income } & \text { Total Utility } \\\hline \$ 0 & 0 \\\hline \$ 20,000 & 20 \\\hline \$ 40,000 & 40 \\\hline \$ 60,000 & 60 \\\hline \$ 80,000 & 80\\\hline\end{array}$$

-Refer to Table 17.2. From the table, we can see that Sue is ________.

A) risk averse
B) risk loving
C) risk neutral
D) We cannot determine Sue's attitude toward risk from the table.

Answer 3

risk neutral

Question 4

Consider the following game. You roll a six-sided die and each time you roll a 6, you get $30. For all other outcomes you pay $6. What is the expected value of the game?

A) -$6
B) $0
C) $6
D) $30

Question 5

Consider the following game. You pick a card from a deck and each time you select an ace, you get $260. For all other cards you must pay $13. What is the expected value of the game?

A) -$12
B) $0
C) $8
D) $32

Question 6

Refer to the information provided in Figure 17.1 below to answer the questions that follow. Figure 17.1
Refer to Figure 17.1. John has two job offers when he graduates from college. John views the offers as identical, except for the salary terms. The first offer is at a fixed annual salary of $50,000. The second offer is at a fixed salary of $20,000 plus a possible bonus of $60,000. John believes that he has a 50-50 chance of earning the bonus. What is the expected value of John's income for each job offer?

A) $50,000 for the first offer and $80,000 for the second offer
B) $50,000 for the first offer and $50,000 for the second offer
C) $50,000 for the first offer and $30,000 for the second offer
D) $25,000 for the first offer and $50,000 for the second offer

Question 7

Refer to the information provided in Figure 17.2 below to answer the questions that follow. Figure 17.2
Refer to Figure 17.2. Sam has two job offers when he graduates from college. Sam views the offers as identical, except for the salary terms. The first offer is at a fixed annual salary of $60,000. The second offer is at a fixed salary of $30,000 plus a possible bonus of $60,000. Sam believes that he has a 50-50 chance of earning the bonus. If Sam takes the offer that maximizes his expected utility and is risk neutral, which job offer will he choose?

A) Sam will take the first offer.
B) Sam will take the second offer.
C) Sam is indifferent between the offers-both yield the same expected utility.
D) Indeterminate from the given information.

Question 8

Mark has two job offers when he graduates from college. Mark views the offers as identical, except for the salary terms. The first offer is at a fixed annual salary of $40,000. The second offer is at a fixed salary of $20,000 plus a possible bonus of $40,000. Mark believes that he has a 50-50 chance of earning the bonus. If Mark takes the offer that maximizes his expected utility and is risk loving, which job offer will he choose?

A) Mark will take the first offer.
B) Mark will take the second offer.
C) Mark is indifferent between the offers-both yield the same expected utility.
D) Indeterminate from the given information.

Question 9

Refer to the data provided in Table 17.1 below to answer the following questions. The table shows the relationship between income and utility for Jane.
Table 17.1
$$\begin{array} { | c | c | } \hline \text { Income } & \text { Total Utility } \\\hline \$ 0 & 0 \\\hline \$ 20,000 & 25 \\\hline \$ 40,000 & 45 \\\hline \$ 60,000 & 60 \\\hline \$ 80,000 & 70\\\hline\end{array}$$

-Refer to Table 17.1. Suppose Jane has a 1/3 chance of becoming disabled in any given year. If she does become disabled, she will earn $0. If Jane does not become disabled, she will earn her usual salary of $60,000. Jane has the opportunity to purchase disability insurance which will pay her her full salary in the event she becomes disabled. On average, how much would such a contract cost the insurance company (per person)?

A) $20,000
B) $30,000
C) $40,000
D) $60,000

Question 10

Refer to the data provided in Table 17.1 below to answer the following questions. The table shows the relationship between income and utility for Jane.
Table 17.1
$$\begin{array} { | c | c | } \hline \text { Income } & \text { Total Utility } \\\hline \$ 0 & 0 \\\hline \$ 20,000 & 25 \\\hline \$ 40,000 & 45 \\\hline \$ 60,000 & 60 \\\hline \$ 80,000 & 70\\\hline\end{array}$$

-Refer to Table 17.1. Suppose Jane has a 1/3 chance of becoming disabled in any given year. If she does become disabled, she will earn $0. If Jane does not become disabled, she will earn her usual salary of $60,000. Jane has the opportunity to purchase disability insurance which will pay her her full salary in the event she becomes disabled. How much would such an insurance policy be worth to Jane?

A) $0
B) $20,000 or less
C) more than $20,000 but less than $40,000
D) $40,000 or more

Question 11

Refer to the information provided in Figure 17.1 below to answer the questions that follow. Figure 17.1
Refer to Figure 17.1. John has two job offers when he graduates from college. John views the offers as identical, except for the salary terms. The first offer is at a fixed annual salary of $50,000. The second offer is at a fixed salary of $20,000 plus a possible bonus of $60,000. John believes that he has a 50-50 chance of earning the bonus. What is John's expected utility for each job offer?

A) expected utility of 200 for the first offer and expected utility of 218 for the second offer
B) expected utility of 200 for the first offer and expected utility of 110 for the second offer
C) expected utility of 200 for the first offer and expected utility of 164 for the second offer
D) expected utility of 100 for the first offer and expected utility of 164 for the second offer

Question 12

Consider the following game. You roll a six-sided die and each time you roll a 6, you get $30. For all other outcomes you pay $6. Since the expected value of this game is $0, the game is called a(n) ________.

A) gamble
B) fair bet
C) even game
D) zero sum game

Question 13

Refer to the data provided in Table 17.1 below to answer the following questions. The table shows the relationship between income and utility for Jane.
Table 17.1
$$\begin{array} { | c | c | } \hline \text { Income } & \text { Total Utility } \\\hline \$ 0 & 0 \\\hline \$ 20,000 & 25 \\\hline \$ 40,000 & 45 \\\hline \$ 60,000 & 60 \\\hline \$ 80,000 & 70\\\hline\end{array}$$

-Refer to Table 17.1. Suppose Jane has a 1/3 chance of becoming disabled in any given year. If she does become disabled, she will earn $0. If Jane does not become disabled, she will earn her usual salary of $60,000. Jane has the opportunity to purchase disability insurance for $20,000 which will pay her her full salary in the event she becomes disabled. Jane's utility per year with the policy is ________ and her expected utility without the policy is ________.

A) 45; 40
B) 45; 45
C) 60; 40
D) 20; 45

Question 14

Refer to the data provided in Table 17.1 below to answer the following questions. The table shows the relationship between income and utility for Jane.
Table 17.1
$$\begin{array} { | c | c | } \hline \text { Income } & \text { Total Utility } \\\hline \$ 0 & 0 \\\hline \$ 20,000 & 25 \\\hline \$ 40,000 & 45 \\\hline \$ 60,000 & 60 \\\hline \$ 80,000 & 70\\\hline\end{array}$$

-Refer to Table 17.1. From the table, we can see that Jane is ________.

A) risk averse
B) risk loving
C) risk neutral
D) We cannot determine Jane's attitude toward risk from the table.

Question 15

Consider the following game. You roll a six-sided die and each time you roll a 6, you get $30. For all other outcomes you pay $6. The $30 when you "win" and the -$6 when you "lose" are called ________.

A) payoffs
B) tradeoffs
C) incentives
D) expected values

Question 16

Refer to the information provided in Figure 17.1 below to answer the questions that follow. Figure 17.1
Refer to Figure 17.1. Suppose John's utility from income is given in the figure. From this we would say that John is ________.

A) risk neutral
B) risk averse
C) risk loving
D) a risk taker

Question 17

Refer to the information provided in Figure 17.2 below to answer the questions that follow. Figure 17.2
Refer to Figure 17.2. Suppose Sam's utility from income is given in the diagram. From this we would say that Sam is ________.

A) risk neutral
B) risk loving
C) risk averse
D) a risk taker

Question 18

The sum of the utilities from each possible outcome of a situation weighted by the probability of that outcome is known as ________.

A) expected utility
B) total utility
C) marginal utility
D) expected value

Question 19

Refer to the information provided in Figure 17.1 below to answer the questions that follow. Figure 17.1
Refer to Figure 17.1. John has two job offers when he graduates from college. John views the offers as identical, except for the salary terms. The first offer is at a fixed annual salary of $50,000. The second offer is at a fixed salary of $20,000 plus a possible bonus of $60,000. John believes that he has a 50-50 chance of earning the bonus. If John takes the offer that maximizes his expected utility and is risk averse, which job offer will he choose?

A) John will take the first offer.
B) John will take the second offer.
C) John is indifferent between the offers-both yield the same expected utility.
D) Indeterminate from the given information.

Question 20

Refer to the data provided in Table 17.2 below to answer the following questions. The table shows the relationship between income and utility for Sue.
Table 17.2
$$\begin{array} { | c | c | } \hline \text { Income } & \text { Total Utility } \\\hline \$ 0 & 0 \\\hline \$ 20,000 & 20 \\\hline \$ 40,000 & 40 \\\hline \$ 60,000 & 60 \\\hline \$ 80,000 & 80\\\hline\end{array}$$

-Refer to Table 17.2. Sue earns $40,000 annually. She has the opportunity to bet her entire salary on the upcoming super bowl. If Sue takes the bet, she will pick the Patriots. She believes that the Patriots have a 50-50 chance of winning the game. If the Patriots win, Sue will double her money ($80,000) but if they lose she loses her entire salary ($0). This bet can be characterized as ________.

A) risk neutral
B) an unfair bet
C) a fair bet
D) risk loving

Question 21

For a risk averse individual, marginal utility of income does not diminish.

Question 22

A diagram of an individual's utility from income will be a line with an increasing slope if the individual is risk averse.

Question 23

In general, risk averse individuals experience diminishing marginal utility from income.

Question 24

If a game is a fair bet, then people will be willing to play the game regardless of the payoffs.

Question 25

Expected value and expected utility are synonyms.

Question 26

If a buyer or seller enters into an exchange with another party who has more information, there is

A) symmetric information and moral hazard.
B) asymmetric information and adverse selection.
C) a negative externality imposed.
D) a free-rider problem.

Question 27

Universal health coverage, lemon laws, and dealer warranties are all examples of tools used to reduce

A) moral hazard.
B) risk premiums.
C) market efficiency.
D) adverse selection.

Question 28

You are in the market for a used 2006 Honda Accord. You know that half of the 2006 Accords are lemons and half are peaches. If you could be assured that the Accord you were buying was a peach, you would be willing to pay up to $10,000. On the other hand, you would only be willing to pay $2,000 for a lemon. You have no ability to discern whether any particular Accord is a lemon or a peach. Sellers of Accords, on the other hand, are likely to know whether their particular car is a lemon or a peach. Suppose sellers of lemons will sell their cars for $1,500 or more and peach sellers will be willing to sell their cars for $8,500 or more. You are willing to offer ________ for a car of unknown quality and ________ are willing to sell you their car.

A) $2,000; lemon owners only
B) $5,000; lemon owners only
C) $6,000; lemon owners only
D) $8,500; both lemon and peach owners

Question 29

Refer to the data provided in Table 17.3 below to answer the following questions. The table shows the relationship between income and utility for Terri.
Table 17.3
$$\begin{array} { | c | c | } \hline \text { Income } & \text { Total Utility } \\\hline \$ 0 & 0 \\\hline \$ 20,000 & 10 \\\hline \$ 40,000 & 25 \\\hline \$ 60,000 & 45 \\\hline \$ 80,000 & 75 \\\hline\end{array}$$

-Refer to Table 17.3. Suppose Terri has a 25% chance of becoming disabled in any given year. If she does become disabled, she will earn $0. If Terri does not become disabled, she will earn her usual salary of $80,000. Terri has the opportunity to purchase disability insurance for $20,000 which will pay her her full salary in the event she becomes disabled. Would Terri purchase such a policy?

A) yes
B) no
C) maybe
D) indeterminate from the given information

Question 30

Refer to the data provided in Table 17.2 below to answer the following questions. The table shows the relationship between income and utility for Sue.
Table 17.2
$$\begin{array} { | c | c | } \hline \text { Income } & \text { Total Utility } \\\hline \$ 0 & 0 \\\hline \$ 20,000 & 20 \\\hline \$ 40,000 & 40 \\\hline \$ 60,000 & 60 \\\hline \$ 80,000 & 80\\\hline\end{array}$$

-Refer to Table 17.2. Sue earns $40,000 annually. She has the opportunity to bet her entire salary on the upcoming super bowl. If Sue takes the bet, she will pick the Patriots. She believes that the Patriots have a 50-50 chance of winning the game. If the Patriots win, Sue will win $81,000 but if they lose she loses her entire salary ($0). Will Sue take the bet?

A) yes
B) no
C) maybe
D) indeterminate from the given information

Question 31

A diagram of an individual's utility from income will be a line with a constant slope if the individual is risk neutral.

Question 32

All of the following statements about asymmetric information are true EXCEPT:

A) Asymmetric information occurs when one party to a transaction has relevant information to the transaction that the other party does not have.
B) Asymmetric information creates market failures because it makes it harder for individuals to engage in transactions that would take place in the presence of perfect information.
C) Asymmetric information can only be solved through government intervention.
D) Asymmetric information occurs in the market for used cars and in the insurance market.

Question 33

As a result of adverse selection problems in the health insurance market, it is likely that over time

A) fewer healthy people will be insured.
B) fewer unhealthy people will be insured.
C) fewer healthy and unhealthy people will be insured.
D) more healthy people will be insured.

Question 34

Consider the following game. You pick a card from a deck and each time you select an ace, you get $260. For all other cards you must pay $13. This game is a fair bet.

Question 35

Refer to the data provided in Table 17.2 below to answer the following questions. The table shows the relationship between income and utility for Sue.
Table 17.2
$$\begin{array} { | c | c | } \hline \text { Income } & \text { Total Utility } \\\hline \$ 0 & 0 \\\hline \$ 20,000 & 20 \\\hline \$ 40,000 & 40 \\\hline \$ 60,000 & 60 \\\hline \$ 80,000 & 80\\\hline\end{array}$$

-Refer to Table 17.2. Sue earns $40,000 annually. She has the opportunity to bet her entire salary on the upcoming super bowl. If Sue takes the bet, she will pick the Patriots. She believes that the Patriots have a 50-50 chance of winning the game. If the Patriots win, Sue will double her money ($80,000) but if they lose she loses her entire salary ($0). Sue's utility if she does not take the bet is ________ and her expected utility from the bet is ________.

A) 40; 80
B) 40; 40
C) 40; 0
D) 80; 20

Question 36

You are in the market for a used 2006 Honda Accord. You know that half of the 2006 Accords are lemons and half are peaches. If you could be assured that the Accord you were buying was a peach, you would be willing to pay up to $10,000. On the other hand, you would only be willing to pay $2,000 for a lemon. You have no ability to discern whether any particular Accord is a lemon or a peach. Sellers of Accords, on the other hand, are likely to know whether their particular car is a lemon or a peach. Suppose sellers of lemons will sell their cars for $1,500 or more and peach sellers will be willing to sell their cars for $8,500 or more. Over time the price in the market for 2006 Accords will ________ and ________ will be traded.

A) be between $8,500 and $10,000 for peaches and between $1,500 and $2,000 for lemons; both lemons and peaches
B) be between $8,500 and $10,000 ; only peaches
C) be between $1,500 and $2,000 for lemons; only lemons
D) be between $1,500 and $10,000; both lemons and peaches

Question 37

Refer to the data provided in Table 17.3 below to answer the following questions. The table shows the relationship between income and utility for Terri.
Table 17.3
$$\begin{array} { | c | c | } \hline \text { Income } & \text { Total Utility } \\\hline \$ 0 & 0 \\\hline \$ 20,000 & 10 \\\hline \$ 40,000 & 25 \\\hline \$ 60,000 & 45 \\\hline \$ 80,000 & 75 \\\hline\end{array}$$

-Refer to Table 17.3. From the table, we can see that Terri is ________.

A) risk averse
B) risk loving
C) risk neutral
D) We cannot determine Jane's attitude toward risk from the table.

Question 38

Refer to the data provided in Table 17.3 below to answer the following questions. The table shows the relationship between income and utility for Terri.
Table 17.3
$$\begin{array} { | c | c | } \hline \text { Income } & \text { Total Utility } \\\hline \$ 0 & 0 \\\hline \$ 20,000 & 10 \\\hline \$ 40,000 & 25 \\\hline \$ 60,000 & 45 \\\hline \$ 80,000 & 75 \\\hline\end{array}$$

-Refer to Table 17.3. Suppose Terri has a 25% chance of becoming disabled in any given year. If she does become disabled, she will earn $0. If Terri does not become disabled, she will earn her usual salary of $80,000. Terri has the opportunity to purchase disability insurance for $20,000 which will pay her her full salary in the event she becomes disabled. Terri's utility with the policy is ________ and her expected utility without the policy is ________.

A) 56.25; 45
B) 45; 56.25
C) 45; 18.75
D) 18.75; 37.5

Question 39

Adverse selection and moral hazard are examples of

A) asymmetric information.
B) selection problems.
C) risk aversion.
D) mechanism designs for dealing with informational problems.

Question 40

Refer to the data provided in Table 17.3 below to answer the following questions. The table shows the relationship between income and utility for Terri.
Table 17.3
$$\begin{array} { | c | c | } \hline \text { Income } & \text { Total Utility } \\\hline \$ 0 & 0 \\\hline \$ 20,000 & 10 \\\hline \$ 40,000 & 25 \\\hline \$ 60,000 & 45 \\\hline \$ 80,000 & 75 \\\hline\end{array}$$

-Refer to Table 17.3. Suppose Terri has a 25% chance of becoming disabled in any given year. If she does become disabled, she will earn $0. If Terri does not become disabled, she will earn her usual salary of $80,000. Terri has the opportunity to purchase disability insurance which will pay her her full salary in the event she becomes disabled. How much would such an insurance policy be worth to Terri?

A) $0
B) less than $20,000 but more than $0
C) $20,000 or more
D) indeterminate from the given information

Question 41

Adverse selection and moral hazard are problems that arise in the presence of asymmetric information.

Question 42

In the area of market signaling, education is a strong signal in the job market because

A) it tells employers that you have gained skills that will be useful in the work place.
B) education is costly to obtain.
C) education is less costly to obtain for highly productive individuals who are also likely to be highly productive in the work place.
D) firms can easily verify your level of education.

Question 43

Jim used to be very careful with his car. However, once he bought full auto insurance on it, he stopped turning on his alarm or even locking it when parking it. This is an example of adverse selection.

Question 44

Moral hazard occurs when one party to a contract changes his behavior in response to that contract and thus passes on costs of that behavior to the other party.

Question 45

A lender faces a(n) ________ problem when the lender lends funds to a borrower for a specific purpose and the borrower then opportunistically uses the funds for another purpose.

A) adverse selection
B) moral hazard
C) external cost
D) free‐rider

Question 46

Life insurance companies require that prospective policy holders have a medical check‐up before the companies will sell the policy because of a(n) ________ problem in which the insured could be ________ than expected.

A) moral hazard; healthy and live longer
B) moral hazard; unhealthy and die sooner
C) adverse selection; healthy and live longer
D) adverse selection; unhealthy and die sooner

Question 47

Relating to the Economics in Practice on page 361: Which of the following is an example of an advertisement in which the fact that something is NOT mentioned indicates that the product is unlikely to be desirable?

A) an advertisement for hot dogs that mentions that it meets certain religious dietary requirements but fails to explain those requirements in a way that would be understood by most people
B) an advertisement for a sneaker that mentions the endorsement of one sports star but fails to mention the sports stars that have endorsed competing products
C) an advertisement for a 30-year old lawn tractor that mentions the color of its paint and the number of cup holders it has but makes no mention of the condition of its engine
D) an advertisement for ice cream that describes the variety of flavors available and the way it tastes but makes no mention of the ice cream's nutritional content

Question 48

You cause an automobile liability insurance company to face a moral hazard problem when you take ________ driving precautions ________ you buy automobile liability insurance from the company.

A) fewer; after
B) more; after
C) fewer; before
D) the same; before and after

Question 49

You own a car dealership and pay all of your sales people a flat salary. As a result, they don't work very hard to generate sales. This is an example of ________.

A) adverse selection
B) moral hazard
C) logrolling
D) an externality

Question 50

Related to the Economics in Practice on page 360: Insurance companies are interested in being legally allowed to obtain the results of genetic testing before deciding on issuing insurance policies to potential buyers, which would lessen the problem of ________ in the health insurance market.

A) moral hazard
B) market signaling
C) adverse selection
D) risk-loving

Question 51

Market signals are

A) actions taken by buyers and sellers to communicate quality in the presence of perfect information.
B) only strong if obtaining the signal is more costly for individuals with valued traits than for those with non-valued traits.
C) used to differentiate those who will drive equally carefully whether or not they have auto insurance from those who drive less carefully when they have insurance.
D) used to distinguish between high and low quality and help correct the adverse selection problem.

Question 52

The insurance industry is susceptible to adverse selection problems, but not problems of moral hazard.

Question 53

Warranties, education, extracurricular activities are all examples of

A) market signals.
B) risk premiums.
C) tools that can correct the moral hazard problem.
D) incentives.

Question 54

A lender faces a(n) ________ problem if borrowers with a greater chance of defaulting on their loans get loans from the lender.

A) adverse selection
B) moral hazard
C) external cost
D) free‐rider

Question 55

In the market for used motorcycles there are high-quality motorcycles and low-quality motorcycles. Potential buyers cannot determine prior to purchase whether the motorcycle is high quality or low quality. Which of the following statements best describes what is likely to happen in this market?

A) The price of a used motorcycle will be very close to the value of a high-quality motorcycle, which will encourage people to sell high-quality motorcycles.
B) The price of a used motorcycle will be between the value of a high-quality and low-quality motorcycle. This will encourage people to withdraw high-quality motorcycles from the market.
C) This is an example of adverse selection, as the buyer will have more information about the quality of the used motorcycle than the seller will.
D) Over time the price of a used motorcycle will increase in this market, as there is more of an incentive for owners of high-quality motorcycles to sell than owners of low-quality motorcycles.

Question 56

Refer to the Economics in Practice on page 361. Advertisements provide information in two ways-what they say and what they omit.

Question 57

Adverse selection is a situation in which asymmetric information results in low-quality goods or low-quality consumers being squeezed out of transactions because they are unable to demonstrate their quality.

Question 58

Annie, a high school student, baby sits to earn extra cash. In order to differentiate herself from other baby sitters, Annie took a babysitting course from the Red Cross. This is an example of a market signal.

Question 59

Relating to the Economics in Practice on page 363: The smart phone app which allows skiers at a slope to report weather conditions to others would lessen the problem of

A) moral hazard.
B) market signaling.
C) asymmetric information.
D) risk-loving.

Question 60

Relating to the Economics in Practice on page 360: An individual with a parent who has Huntington's disease has a 50 percent chance of also having the disease, and can use this information when deciding on the purchase of health insurance. This is an example of ________ favoring potential insurance buyers.

A) moral hazard
B) asymmetric information
C) market signaling
D) adverse selection

Question 61

Mechanism design can be used to provide employers and employees with the right incentives in labor markets.

Question 62

In the labor market, contracts are often designed to include a variable salary component that is tied to some measure of performance. Why?

A) Such contracts provide workers with the incentive to work hard.
B) Most people are risk-loving and thus variability in their compensation leads to higher total utility.
C) Labor unions demand a variable salary component.
D) The variable component reduces wages paid by firms.

Question 63

Mechanism design is used to

A) align the interests of two parties in a transaction.
B) give individuals the incentive to reveal the truth about themselves.
C) correct inefficiencies associated with asymmetric information.
D) All of the above are correct.

Question 64

Labor market compensation contracts can be designed to screen out poor quality workers as well as provide employees with incentives to work hard.

Question 65

Performance compensation that is tied to outcomes out of the employee's control will provide employees with the incentive to work hard.

Question 66

Which of the following is an example of mechanism design?

A) an employer pays all sales people a fixed salary
B) welfare reform that limits the amount of time a person can collect benefits
C) health insurance with zero co-pays
D) reduced prices on bulk purchases