Question 1

Some countries only allow people who have been vaccinated against Covid-19 to eat in restaurants. Which concept of asymmetric information does this illustrate?

Accepted Answer

Screening.

Question 2

Consumer products may break down due to no fault of the consumer. Explain how a manufacturer's warranty to replace faulty products can reduce the risk on the consumer.

Accepted Answer

If the manufacture provides a warranty, the consumer need not bear the cost of repair. The warranty removes the risk to the consumer.

Question 3

British students apply to university before they complete their national examinations. Universities typically accept students with conditions, for instance, two A grades. Which concept of asymmetric information does this illustrate?

Accepted Answer

Contingent contract.

Question 4

Health insurance covers a person's healthcare expenses. Explain how insurers suffer from adverse selection.

Accepted Answer

The answer of Health insurance covers a person's healthcare expenses....

Question 5

To stand out from others applying for jobs in finance, Maya qualified as a Chartered Financial Analyst. Under what conditions is this a credible signal?

Accepted Answer

The answer of To stand out from others applying for...

Question 6

Many retailers offer customers the option to pay in instalments. In so-called "buy now pay later" schemes, explain the asymmetry of information.

Accepted Answer

The answer of Many retailers offer customers the option to...

Question 7

British students apply to university before they complete their national examinations. Universities typically accept students with conditions, for instance, two A grades. Which concept of asymmetric information does this illustrate?

Accepted Answer

A)  Signaling. 
B)  Screening. 
C)  Contingent contract. 
D)  a, b and c.

Question 8

Health insurance covers a person's healthcare expenses. Applicants for insurance have better information about their own health and lifestyle. Explain how insurers suffer from adverse selection.

Accepted Answer

A)  People with worse health and lifestyle would be more likely to buy the insurance. 
B)  People with worse health and lifestyle would be less likely to buy the insurance 
C)  People who are more risk-averse would be more likely to buy the insurance.. 
D)  People who are more risk-averse would be more likely to buy the insurance. 
E)  None of the above.

Question 9

The owner of a restaurant is worried that Covid-19 policies might affect her business. Does she face uncertainty, risk, and/or asymmetric information?

Accepted Answer

The answer of The owner of a restaurant is worried...

Question 10

Many retailers offer customers the option to pay in instalments. In so-called "buy now pay later" schemes, explain the asymmetry of information.

Accepted Answer

A)  The retailer extends credit but lacks information about the customer's ability and willingness to pay the future instalments. 
B)  The retailer bears the risk that the customer will not pay. 
C)  The customer has better information about her ability and willingness to pay. 
D)  The customer can decide whether to pay.

Question 11

A bank is seeking to downsize by offering workers incentives to retire early. What problem of adverse selection might this scheme cause?

Accepted Answer

The answer of A bank is seeking to downsize by...

Question 12

Some countries only allow people who have been vaccinated against Covid-19 to eat in restaurants. Which concept of asymmetric information does this illustrate?

Accepted Answer

A)  Screening. 
B)  Signaling. 
C)  Contingent contract. 
D)  All of the above.

Question 13

The owner of a restaurant is worried that Covid-19 policies might affect her business. Does she face uncertainty, risk, and/or asymmetric information?

Accepted Answer

A)  Uncertainty. 
B)  Risk. 
C)  Asymmetric information. 
D)  a and b. 
E)  a, b, and c.

Question 14

A bank is seeking to downsize by offering workers incentives to retire early. What problem of adverse selection might this scheme cause?

Accepted Answer

A)  The more risk-averse workers would be more likely to retire early. 
B)  The more capable workers would be more likely to retire early. 
C)  Workers would look outside for better opportunities. 
D)  a and b. 
E)  b and c.

Question 15

To stand out from others applying for jobs in finance, Maya qualified as a Chartered Financial Analyst. Under what conditions is this a credible signal?

Accepted Answer

A)  For less capable persons, the cost of qualifying as a CFA must be higher. 
B)  For more capable persons, the cost of qualifying as a CFA must be higher. 
C)  The CFA examinations must be challenging. 
D)  Financial institutions must value the CFA qualification. 
E)  None of the above.

Question 16

Consumer products may break down due to no fault of the consumer. Explain how a manufacturer's warranty to replace faulty products can reduce the risk on the consumer.

Accepted Answer

A)  If the product breaks down, the consumer need not bear the cost of replacement. 
B)  The cost to the consumer is the same whether the product breaks down or not. 
C)  The consumer can be sure of getting a functional product. 
D)  a and b. 
E)  a, b, and c.

Question 17

Some lawyers accept fees on a contingency basis rather than the conventional hourly rate. Under the contingency fee, the lawyer receives a share of the client's winnings in court. Explain the contingency fee as a form of signaling.

Accepted Answer

The answer of Some lawyers accept fees on a contingency...

Question 18

Some lawyers accept fees on a contingency basis rather than the conventional hourly rate. Under the contingency fee, the lawyer receives a share of the client's winnings in court. Which concept of asymmetric information does this illustrate?

Accepted Answer

A)  Screening. 
B)  Signaling. 
C)  Contingent contract. 
D)  a and b. 
E)  b and c.

Question 19

Suppose that you are buying some antique furniture. Why should you hire an expert to appraise it?

Accepted Answer

A)  The antique may not be genuine. 
B)  The market price of antiques fluctuates over time. 
C)  The price of antiques varies with demand and supply. 
D)  Buying antiques is risky.

Exam 11: Asymmetric Information

Some countries only allow people who have been vaccinated against Covid-19 to eat in restaurants. Which concept of asymmetric information does this illustrate?

Consumer products may break down due to no fault of the consumer. Explain how a manufacturer's warranty to replace faulty products can reduce the risk on the consumer.

British students apply to university before they complete their national examinations. Universities typically accept students with conditions, for instance, two A grades. Which concept of asymmetric information does this illustrate?

Health insurance covers a person's healthcare expenses. Explain how insurers suffer from adverse selection.

To stand out from others applying for jobs in finance, Maya qualified as a Chartered Financial Analyst. Under what conditions is this a credible signal?

Many retailers offer customers the option to pay in instalments. In so-called "buy now pay later" schemes, explain the asymmetry of information.

British students apply to university before they complete their national examinations. Universities typically accept students with conditions, for instance, two A grades. Which concept of asymmetric information does this illustrate?

Health insurance covers a person's healthcare expenses. Applicants for insurance have better information about their own health and lifestyle. Explain how insurers suffer from adverse selection.

The owner of a restaurant is worried that Covid-19 policies might affect her business. Does she face uncertainty, risk, and/or asymmetric information?

Many retailers offer customers the option to pay in instalments. In so-called "buy now pay later" schemes, explain the asymmetry of information.

A bank is seeking to downsize by offering workers incentives to retire early. What problem of adverse selection might this scheme cause?

Some countries only allow people who have been vaccinated against Covid-19 to eat in restaurants. Which concept of asymmetric information does this illustrate?

The owner of a restaurant is worried that Covid-19 policies might affect her business. Does she face uncertainty, risk, and/or asymmetric information?

A bank is seeking to downsize by offering workers incentives to retire early. What problem of adverse selection might this scheme cause?

To stand out from others applying for jobs in finance, Maya qualified as a Chartered Financial Analyst. Under what conditions is this a credible signal?

Consumer products may break down due to no fault of the consumer. Explain how a manufacturer's warranty to replace faulty products can reduce the risk on the consumer.

Some lawyers accept fees on a contingency basis rather than the conventional hourly rate. Under the contingency fee, the lawyer receives a share of the client's winnings in court. Explain the contingency fee as a form of signaling.

Some lawyers accept fees on a contingency basis rather than the conventional hourly rate. Under the contingency fee, the lawyer receives a share of the client's winnings in court. Which concept of asymmetric information does this illustrate?

Suppose that you are buying some antique furniture. Why should you hire an expert to appraise it?