Question 1

Because of asymmetric information,a seller of a lemon used car earns:

Accepted Answer

A) more profit than a seller of a plum used car. 
B) less profit than a seller of a plum used car. 
C) the same profit as a seller of a plum used car. 
D) less revenue than a seller of a plum used car. 
A) more profit than a seller of a plum used car. 
B) less profit than a seller of a plum used car. 
C) the same profit as a seller of a plum used car. 
D) less revenue than a seller of a plum used car. A

Question 2

Various state governments have passed "lemon laws" to protect buyers of used cars as a result of the problem of:

Accepted Answer

A) moral hazard. 
B) spillovers. 
C) an injunction. 
D) asymmetric information. 
A) moral hazard. 
B) spillovers. 
C) an injunction. 
D) asymmetric information. D

Question 3

A product that offers a guarantee is not any more appealing to consumers than a similar product that does not offer a guarantee as long as the two products are priced the same.

Accepted Answer

A) True 
 B)False  False

Question 4

Recall the application about the California kiwifruit market and the "lemons" problem.If the problem of adverse selection exists in the kiwifruit market,we can expect the quality of fruit to be ________ and the price to be ________.

Accepted Answer

A) high;high 
B) high;low 
C) low;high 
D) low;low 
A) high;high 
B) high;low 
C) low;high 
D) low;low

Question 5

A mixed market exists when goods of different qualities are sold for the same price.

Accepted Answer

A) True 
 B)False

Question 6

Adverse selection problem in the kiwifruit market leads to the presence of low-quality kiwifruit that will increase the number of high-quality kiwifruit.

Accepted Answer

A) True 
 B)False

Question 7

Car companies offer certified pre-owned vehicles to reduce the problem of moral hazard.

Accepted Answer

A) True 
 B)False

Question 8

Recall the application about unisex automobile insurance in the European Union.Why did the average for 18-year-old women's insurance prices went up compared to 18-year-old men when the gender discrimination prohibition went into effect?

Accepted Answer

A) 18-year-old men are more costly to the insurance companies and are now included in the same pool with women,raising the insurance prices up. 
B) 18-year-old men are less costly to the insurance companies and are now included in the same pool with women who on average are more reckless divers who raise the insurance prices up. 
C) 18-year-old men and women are the same cost to the insurance that is the reason why they were put in the same pool and charge the same amount regardless the gender. 
D) None of the above are correct. 
A) 18-year-old men are more costly to the insurance companies and are now included in the same pool with women,raising the insurance prices up. 
B) 18-year-old men are less costly to the insurance companies and are now included in the same pool with women who on average are more reckless divers who raise the insurance prices up. 
C) 18-year-old men and women are the same cost to the insurance that is the reason why they were put in the same pool and charge the same amount regardless the gender. 
D) None of the above are correct.

Question 9

After James purchased life insurance,he began to live recklessly,parachuting out of airplanes and bungee-jumping.What economic phenomenon was occurring with this change in James' behavior? Explain.

Accepted Answer

James' new behavior was a result of mora

Question 10

If one side of the market,either the buyer or seller of a good or service has better information than the other side,there is:

Accepted Answer

A) moral hazard. 
B) asymmetric information. 
C) an external cost. 
D) a free-rider problem. 
A) moral hazard. 
B) asymmetric information. 
C) an external cost. 
D) a free-rider problem.

Question 11

When the buyer is more knowledgeable than the seller,there is a(n):

Accepted Answer

A) moral hazard problem. 
B) asymmetric information problem. 
C) perfect information problem. 
D) the lemon problem. 
A) moral hazard problem. 
B) asymmetric information problem. 
C) perfect information problem. 
D) the lemon problem.

Question 12

Which of the following is an example of moral hazard?

Accepted Answer

A) a person who drives more recklessly after obtaining automobile insurance 
B) a person who engages in unrisky behavior after enrolling in his firm's health insurance plan 
C) a driver who reduces his level of insurance coverage after his premiums rise 
D) all of the above 
A) a person who drives more recklessly after obtaining automobile insurance 
B) a person who engages in unrisky behavior after enrolling in his firm's health insurance plan 
C) a driver who reduces his level of insurance coverage after his premiums rise 
D) all of the above

Question 13

Explain why the insurance market suffers from the adverse-selection problem.

Accepted Answer

Insurance companies are forced to pick f

Question 14

Explain the two predictions made by the lemons model.

Accepted Answer

First,the presence of low-quality goods

Question 15

Health insurance companies are often at an advantage because they must pick from a desirable selection of customers.

Accepted Answer

A) True 
 B)False

Question 16

In the market for automobile insurance,asymmetric information occurs when:

Accepted Answer

A) insured drivers drive more safely than uninsured drivers. 
B) insured drivers drive more recklessly than uninsured drivers. 
C) drivers with greater risk purchase more automobile insurance. 
D) automobile insurance is universal. 
A) insured drivers drive more safely than uninsured drivers. 
B) insured drivers drive more recklessly than uninsured drivers. 
C) drivers with greater risk purchase more automobile insurance. 
D) automobile insurance is universal.

Question 17

An example of adverse selection is:

Accepted Answer

A) when high-quality loan applicants drive low-quality loan applicants out of the market for bank loans. 
B) when a person discovers that he has a serious illness and then purchases health insurance. 
C) when consumers are not willing to pay top dollar for a used car because of imperfect information. 
D) All of the above are examples of adverse selection. 
A) when high-quality loan applicants drive low-quality loan applicants out of the market for bank loans. 
B) when a person discovers that he has a serious illness and then purchases health insurance. 
C) when consumers are not willing to pay top dollar for a used car because of imperfect information. 
D) All of the above are examples of adverse selection.

Question 18

Table 14.2
-Refer to Table 14.2,which shows the market for used fishing boats.Which of the following is true about this market?

Accepted Answer

A) The market is in equilibrium. 
B) We can expect the price of used boats to fall. 
C) We can expect the price of used boats to rise. 
D) Buyers' willingness to pay for a used boat will fall. 
A) The market is in equilibrium. 
B) We can expect the price of used boats to fall. 
C) We can expect the price of used boats to rise. 
D) Buyers' willingness to pay for a used boat will fall.

Question 19

What is a reservation price?

Accepted Answer

A reservation price is the pri

Question 20

When considering the adverse-selection problem in the case of medical insurance,as the cost of insurance rises:

Accepted Answer

A) healthy people might reduce their coverage while unhealthy people will maintain their coverage. 
B) unhealthy people might reduce their coverage,while healthy people will maintain their coverage. 
C) both healthy and unhealthy people will likely reduce their coverage. 
D) both healthy and unhealthy people will likely maintain their coverage. 
A) healthy people might reduce their coverage while unhealthy people will maintain their coverage. 
B) unhealthy people might reduce their coverage,while healthy people will maintain their coverage. 
C) both healthy and unhealthy people will likely reduce their coverage. 
D) both healthy and unhealthy people will likely maintain their coverage.

Because of asymmetric information,a seller of a lemon used car earns:

Various state governments have passed "lemon laws" to protect buyers of used cars as a result of the problem of:

A product that offers a guarantee is not any more appealing to consumers than a similar product that does not offer a guarantee as long as the two products are priced the same.

Recall the application about the California kiwifruit market and the "lemons" problem.If the problem of adverse selection exists in the kiwifruit market,we can expect the quality of fruit to be and the price to be .

A mixed market exists when goods of different qualities are sold for the same price.

Adverse selection problem in the kiwifruit market leads to the presence of low-quality kiwifruit that will increase the number of high-quality kiwifruit.

Car companies offer certified pre-owned vehicles to reduce the problem of moral hazard.

Recall the application about unisex automobile insurance in the European Union.Why did the average for 18-year-old women's insurance prices went up compared to 18-year-old men when the gender discrimination prohibition went into effect?

After James purchased life insurance,he began to live recklessly,parachuting out of airplanes and bungee-jumping.What economic phenomenon was occurring with this change in James' behavior? Explain.

If one side of the market,either the buyer or seller of a good or service has better information than the other side,there is:

When the buyer is more knowledgeable than the seller,there is a(n):

Which of the following is an example of moral hazard?

Explain why the insurance market suffers from the adverse-selection problem.

Explain the two predictions made by the lemons model.

Health insurance companies are often at an advantage because they must pick from a desirable selection of customers.

In the market for automobile insurance,asymmetric information occurs when:

An example of adverse selection is:

Table 14.2 -Refer to Table 14.2,which shows the market for used fishing boats.Which of the following is true about this market?

What is a reservation price?

When considering the adverse-selection problem in the case of medical insurance,as the cost of insurance rises:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, supply, and Market Equilibrium

Elasticity: a Measure of Responsiveness

Market Efficiency and Government Intervention

Consumer Choice: Utility Theory and Insights From Neuroscience

Production Technology and Cost

Perfect Competition

Monopoly and Price Discrimination

Market Entry and Monopolistic Competition

Oligopoly and Strategic Behavior

Controlling Market Power: Antitrust and Regulation

Public Goods and Public Choice

External Costs and Environmental Policy

The Labor Market and the Distribution of Income

International Trade and Public Policy

Filters

Exam 14: Imperfect Information: Adverse Selection and Moral Hazard

Because of asymmetric information,a seller of a lemon used car earns:

Various state governments have passed "lemon laws" to protect buyers of used cars as a result of the problem of:

A product that offers a guarantee is not any more appealing to consumers than a similar product that does not offer a guarantee as long as the two products are priced the same.

Recall the application about the California kiwifruit market and the "lemons" problem.If the problem of adverse selection exists in the kiwifruit market,we can expect the quality of fruit to be ________ and the price to be ________.

A mixed market exists when goods of different qualities are sold for the same price.

Adverse selection problem in the kiwifruit market leads to the presence of low-quality kiwifruit that will increase the number of high-quality kiwifruit.

Car companies offer certified pre-owned vehicles to reduce the problem of moral hazard.

Recall the application about unisex automobile insurance in the European Union.Why did the average for 18-year-old women's insurance prices went up compared to 18-year-old men when the gender discrimination prohibition went into effect?

After James purchased life insurance,he began to live recklessly,parachuting out of airplanes and bungee-jumping.What economic phenomenon was occurring with this change in James' behavior? Explain.

If one side of the market,either the buyer or seller of a good or service has better information than the other side,there is:

When the buyer is more knowledgeable than the seller,there is a(n):

Which of the following is an example of moral hazard?

Explain why the insurance market suffers from the adverse-selection problem.

Explain the two predictions made by the lemons model.

Health insurance companies are often at an advantage because they must pick from a desirable selection of customers.

In the market for automobile insurance,asymmetric information occurs when:

An example of adverse selection is:

Table 14.2 -Refer to Table 14.2,which shows the market for used fishing boats.Which of the following is true about this market?

What is a reservation price?

When considering the adverse-selection problem in the case of medical insurance,as the cost of insurance rises:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, supply, and Market Equilibrium

Elasticity: a Measure of Responsiveness

Market Efficiency and Government Intervention

Consumer Choice: Utility Theory and Insights From Neuroscience

Production Technology and Cost

Perfect Competition

Monopoly and Price Discrimination

Market Entry and Monopolistic Competition

Oligopoly and Strategic Behavior

Controlling Market Power: Antitrust and Regulation

Public Goods and Public Choice

External Costs and Environmental Policy

The Labor Market and the Distribution of Income

International Trade and Public Policy

Filters

Recall the application about the California kiwifruit market and the "lemons" problem.If the problem of adverse selection exists in the kiwifruit market,we can expect the quality of fruit to be and the price to be .