Question 1

If the value of a cable TV franchise is uncertain, too much may be bid for the franchise.This is an example of

Accepted Answer

A) moral hazard 
B) an authority relation 
C) the winner's curse 
D) the principal-agent problem 
E) adverse selection 
A) moral hazard 
B) an authority relation 
C) the winner's curse 
D) the principal-agent problem 
E) adverse selection

Question 2

Darryl graduated with honors from college.However, he obtained his outstanding grades by cheating on every final exam with help from his best friend; Darryl actually has the talent of a C student.Nevertheless, he gets a job with a top accounting firm in Boston.The fact that he is hired illustrates a failure of

Accepted Answer

A) comparable worth 
B) signaling and screening 
C) marginal productivity 
D) supply and demand 
E) specialization 
A) comparable worth 
B) signaling and screening 
C) marginal productivity 
D) supply and demand 
E) specialization

Question 3

Which of the following is not a principal-agent relationship?

Accepted Answer

A) Adam and Gloria get married. 
B) Payless, Getless, Inc., hires a salesperson. 
C) Dixie hires a lawyer. 
D) Citizens elect a state senator. 
E) Opal gets her car repaired. 
A) Adam and Gloria get married. 
B) Payless, Getless, Inc., hires a salesperson. 
C) Dixie hires a lawyer. 
D) Citizens elect a state senator. 
E) Opal gets her car repaired.

Question 4

One result of asymmetric information in the market for bank loans is that

Accepted Answer

A) few loans are offered 
B) few bad loans are made 
C) more bad loans than good loans may be made 
D) lenders benefit at the expense of borrowers 
E) the interest on good loans will be higher than otherwise 
A) few loans are offered 
B) few bad loans are made 
C) more bad loans than good loans may be made 
D) lenders benefit at the expense of borrowers 
E) the interest on good loans will be higher than otherwise

Question 5

If an employment situation is characterized by adverse selection, there is an excess supply of underqualified applicants for each job.

Accepted Answer

A) True 
 B)False

Question 6

Suppose the refrigerator repairman charges you for two hours of labor even though he could have fixed it in ten minutes.This is an example of

Accepted Answer

A) natural selection 
B) moral hazard 
C) hidden actions 
D) external costs 
E) hidden characteristics 
A) natural selection 
B) moral hazard 
C) hidden actions 
D) external costs 
E) hidden characteristics

Question 7

Which of the following is the best example of a vertically integrated firm?

Accepted Answer

A) General Electric, which produces light bulbs, jet engines, washing machines, and so on 
B) Kinko's, which has a photocopy store near many colleges and universities 
C) Americam Apparel, which from a single building in downtowm LA, controls the dyeing, finishing, designing, sewing, cutting, marketing and distribution of the company's product. 
D) Intel, which makes computer chips for most of the computer manufacturers 
E) Century 21, which has real estate offices that help people sell a house in one city and buy another house in another city 
A) General Electric, which produces light bulbs, jet engines, washing machines, and so on 
B) Kinko's, which has a photocopy store near many colleges and universities 
C) Americam Apparel, which from a single building in downtowm LA, controls the dyeing, finishing, designing, sewing, cutting, marketing and distribution of the company's product. 
D) Intel, which makes computer chips for most of the computer manufacturers 
E) Century 21, which has real estate offices that help people sell a house in one city and buy another house in another city

Question 8

According to the search model, a computerized dating service should

Accepted Answer

A) reduce the amount of search 
B) not affect the amount of search 
C) increase quality dispersion 
D) reduce quality dispersion 
E) lower the marginal benefit of search 
A) reduce the amount of search 
B) not affect the amount of search 
C) increase quality dispersion 
D) reduce quality dispersion 
E) lower the marginal benefit of search

Question 9

According to the search model, the marginal benefit of acquiring information about a product is greater for expensive items than for cheap items.

Accepted Answer

A) True 
 B)False

Question 10

Production through the firm is often more efficient than market exchange when

Accepted Answer

A) production requires many transactions among many resource owners 
B) production requires few transactions between two resource owners 
C) the cost of transacting business through market relations is less than the cost of undertaking the same activity within the firm 
D) inputs are easily identified, measured, priced, and hired 
E) the costs of determining inputs and negotiating contracts are low 
A) production requires many transactions among many resource owners 
B) production requires few transactions between two resource owners 
C) the cost of transacting business through market relations is less than the cost of undertaking the same activity within the firm 
D) inputs are easily identified, measured, priced, and hired 
E) the costs of determining inputs and negotiating contracts are low

Question 11

If the minimum efficient scale in toaster production is 500, 000 units per year,

Accepted Answer

A) the average cost of producing 300, 000 toasters is greater than the average cost of producing 500, 000 
B) the average cost of producing 300, 000 toasters is equal to the average cost of producing 500, 000 
C) the total cost of producing 300, 000 toasters is greater than the total cost of producing 500, 000 
D) the firm should not produce more than 500, 000 toasters 
E) MC exceeds AC at 500, 000 toasters 
A) the average cost of producing 300, 000 toasters is greater than the average cost of producing 500, 000 
B) the average cost of producing 300, 000 toasters is equal to the average cost of producing 500, 000 
C) the total cost of producing 300, 000 toasters is greater than the total cost of producing 500, 000 
D) the firm should not produce more than 500, 000 toasters 
E) MC exceeds AC at 500, 000 toasters

Question 12

Exhibit 14-3   In Exhibit 14-3 if Jira gathers an amount of information equal to 40 minutes,

Accepted Answer

A) she has made the optimal search 
B) she is relying solely on common knowledge 
C) she has acquired all available information that is beneficial to her 
D) further information will be costless to her 
E) she should increase her search 
A) she has made the optimal search 
B) she is relying solely on common knowledge 
C) she has acquired all available information that is beneficial to her 
D) further information will be costless to her 
E) she should increase her search

Question 13

For most consumers, the process of gathering information can be considered

Accepted Answer

A) irrational 
B) unproductive 
C) a vocation 
D) nonmarket work 
E) costless 
A) irrational 
B) unproductive 
C) a vocation 
D) nonmarket work 
E) costless

Question 14

Waiters, barbers, and bellhops are paid primarily through tips because

Accepted Answer

A) managers can easily assess their productivity 
B) managers are better at judging their productivity than are consumers 
C) consumers can judge their productivity easily 
D) it's always been done that way 
E) union regulations require this form of payment 
A) managers can easily assess their productivity 
B) managers are better at judging their productivity than are consumers 
C) consumers can judge their productivity easily 
D) it's always been done that way 
E) union regulations require this form of payment

Question 15

The limit on the amount of information a manager can comprehend about a firm's operation is known as

Accepted Answer

A) adverse selection 
B) bounded rationality 
C) diseconomies of scope 
D) managerial incompetence 
E) moral hazard 
A) adverse selection 
B) bounded rationality 
C) diseconomies of scope 
D) managerial incompetence 
E) moral hazard

Question 16

Insurance companies try to avoid adverse selection and moral hazard problems through all of the following methods except one.Which is the exception?

Accepted Answer

A) offering group policies 
B) requiring lengthy application forms 
C) requiring physical examinations 
D) setting uniform premiums (i.e., prices of insurance policies)for all policies 
E) requiring policyholders to pay a deductible 
A) offering group policies 
B) requiring lengthy application forms 
C) requiring physical examinations 
D) setting uniform premiums (i.e., prices of insurance policies)for all policies 
E) requiring policyholders to pay a deductible

Question 17

One result of asymmetric information in the market for used cars is that buyers benefit at the expense of sellers.

Accepted Answer

A) True 
 B)False

Question 18

If transaction costs of market exchange are small, then a firm will expand to produce more of its product internally.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following problems best describes what may occur when Dixie hires an attorney to help in her child-custody suit?

Accepted Answer

A) the winner's curse 
B) a signaling problem 
C) a principal-agent problem 
D) an adverse selection problem 
E) unemployment 
A) the winner's curse 
B) a signaling problem 
C) a principal-agent problem 
D) an adverse selection problem 
E) unemployment

Question 20

One reason a computer manufacturer may produce its own microchips rather than buy them is that it can maintain control over production quality.

Accepted Answer

A) True 
 B)False

Exam 14: Transaction Costs, Imperfect Information, and Behavioral Economics

If the value of a cable TV franchise is uncertain, too much may be bid for the franchise.This is an example of

Which of the following is not a principal-agent relationship?

One result of asymmetric information in the market for bank loans is that

If an employment situation is characterized by adverse selection, there is an excess supply of underqualified applicants for each job.

Suppose the refrigerator repairman charges you for two hours of labor even though he could have fixed it in ten minutes.This is an example of

Which of the following is the best example of a vertically integrated firm?

According to the search model, a computerized dating service should

According to the search model, the marginal benefit of acquiring information about a product is greater for expensive items than for cheap items.

Production through the firm is often more efficient than market exchange when

If the minimum efficient scale in toaster production is 500, 000 units per year,

Exhibit 14-3 In Exhibit 14-3 if Jira gathers an amount of information equal to 40 minutes,

For most consumers, the process of gathering information can be considered

Waiters, barbers, and bellhops are paid primarily through tips because

The limit on the amount of information a manager can comprehend about a firm's operation is known as

Insurance companies try to avoid adverse selection and moral hazard problems through all of the following methods except one.Which is the exception?

One result of asymmetric information in the market for used cars is that buyers benefit at the expense of sellers.

If transaction costs of market exchange are small, then a firm will expand to produce more of its product internally.

Which of the following problems best describes what may occur when Dixie hires an attorney to help in her child-custody suit?

One reason a computer manufacturer may produce its own microchips rather than buy them is that it can maintain control over production quality.

The Art and Science of Economic Analysis

Appendix--Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Appendix--Price Elasticity and Tax Incidence

Consumer Choice and Demand

Appendix--Indifference Curves and Utility Maximization

Production and Cost in the Firm

A--Perfect Competition

B--Perfect Competition

A--Monopoly

B--Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, and Corporate Finance

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

International Finance

Economic Development

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