Question 1

What is adverse selection?

Accepted Answer

Adverse selection can occur wh

Question 2

You want to purchase a new car.You have gone to 3 dealerships that sell the type of car you want.The price of the car is different at each of the dealerships.You have estimated that if you go to another dealership,the marginal amount you may save will be $250,but the marginal cost of going to the dealership would be $350.Which of the following statements is accurate?

Accepted Answer

A) You should go to the next dealership,as you would be able to save an additional $250. 
B) In order to determine whether or not you should go to the next dealership,you would need to know the total costs and total benefits of this action. 
C) You should not go to the next dealership because the marginal cost of this action exceeds the marginal benefit. 
D) You should continue going to dealerships as long as the marginal benefit of additional search is positive. 
A) You should go to the next dealership,as you would be able to save an additional $250. 
B) In order to determine whether or not you should go to the next dealership,you would need to know the total costs and total benefits of this action. 
C) You should not go to the next dealership because the marginal cost of this action exceeds the marginal benefit. 
D) You should continue going to dealerships as long as the marginal benefit of additional search is positive.

Question 3

Suppose more people drive SUVs because they believe they are safer than cars.The number of car related deaths may increase if:

Accepted Answer

A) an adverse selection problem causes people to drive more recklessly. 
B) a moral hazard problem causes people to drive more recklessly. 
C) there is adverse selection in the market for SUVs. 
D) there is asymmetric information in the market for sedans. 
A) an adverse selection problem causes people to drive more recklessly. 
B) a moral hazard problem causes people to drive more recklessly. 
C) there is adverse selection in the market for SUVs. 
D) there is asymmetric information in the market for sedans.

Question 4

The domination of the used car market by lemons is an example of the ________ problem.

Accepted Answer

A) adverse selection 
B) moral hazard 
C) perfect information 
D) marginal analysis 
A) adverse selection 
B) moral hazard 
C) perfect information 
D) marginal analysis

Question 5

What is a thin market?

Accepted Answer

A thin market is a market in w

Question 6

Recall the application about the market for free-agent pitchers and how they are similar to used cars.In the market for used baseball pitchers:

Accepted Answer

A) free agency has eliminated the adverse selection problem. 
B) pitchers who switch teams are generally healthier than those who do not. 
C) asymmetric information leads to adverse selection. 
D) both A and B 
A) free agency has eliminated the adverse selection problem. 
B) pitchers who switch teams are generally healthier than those who do not. 
C) asymmetric information leads to adverse selection. 
D) both A and B

Question 7

Dan is trying to sell a high-quality used desktop computer,but all potential buyers are not willing to pay the price that Dan wants.This is likely due to a (an)________ problem.

Accepted Answer

A) moral hazard 
B) disutility 
C) adverse selection 
D) price discrimination 
A) moral hazard 
B) disutility 
C) adverse selection 
D) price discrimination

Question 8

In an asymmetric market for used cars,which of the following could be used to avoid a thin market?

Accepted Answer

A) offering money-back guarantees on plum used cars 
B) offering warranties on lemon used cars 
C) offering repair guarantees on lemon used cars 
D) used car salesmen 
A) offering money-back guarantees on plum used cars 
B) offering warranties on lemon used cars 
C) offering repair guarantees on lemon used cars 
D) used car salesmen

Question 9

One method of responding to the lemons effect is to invest in information.

Accepted Answer

A) True 
 B)False

Question 10

The reservation price is the price at which a consumer is indifferent about additional search for a lower price.

Accepted Answer

A) True 
 B)False

Question 11

How does the Internet auction site,eBay,address the asymmetric information problem?

Accepted Answer

The company allows buyers to rate their

Question 12

What can a seller do to try to distinguish his product as a high-quality product if consumers are skeptical?

Accepted Answer

A seller could distinguish his

Question 13

Most of the working-age people in the U.S.have private health insurance.

Accepted Answer

A) True 
 B)False

Question 14

The price where the marginal benefit of search equals the marginal cost is called:

Accepted Answer

A) search price. 
B) discovered price. 
C) marginal price. 
D) reservation price. 
A) search price. 
B) discovered price. 
C) marginal price. 
D) reservation price.

Question 15

The lemons model may cause markets with asymmetric information:

Accepted Answer

A) to reduce the number of low-quality goods. 
B) to reduce the number of high-quality goods. 
C) to increase the number of high-quality goods. 
D) to increase the average quality of goods. 
A) to reduce the number of low-quality goods. 
B) to reduce the number of high-quality goods. 
C) to increase the number of high-quality goods. 
D) to increase the average quality of goods.

Question 16

A situation in which one side of an economic relationship takes undesirable or costly actions that the other side of the relationship cannot observe.This kind of situation is called:

Accepted Answer

A) adverse selection. 
B) moral hazard. 
C) thick markets. 
D) an injunction. 
A) adverse selection. 
B) moral hazard. 
C) thick markets. 
D) an injunction.

Question 17

Asymmetric information occurs if John who is buying Kim's used Toyota Corolla has the same amount of information as Kim.

Accepted Answer

A) True 
 B)False

Question 18

Moral hazard occurs when individuals become more careful after purchasing insurance.

Accepted Answer

A) True 
 B)False

What is adverse selection?

Suppose more people drive SUVs because they believe they are safer than cars.The number of car related deaths may increase if:

The domination of the used car market by lemons is an example of the ________ problem.

What is a thin market?

Recall the application about the market for free-agent pitchers and how they are similar to used cars.In the market for used baseball pitchers:

Dan is trying to sell a high-quality used desktop computer,but all potential buyers are not willing to pay the price that Dan wants.This is likely due to a (an)________ problem.

In an asymmetric market for used cars,which of the following could be used to avoid a thin market?

One method of responding to the lemons effect is to invest in information.

The reservation price is the price at which a consumer is indifferent about additional search for a lower price.

How does the Internet auction site,eBay,address the asymmetric information problem?

What can a seller do to try to distinguish his product as a high-quality product if consumers are skeptical?

Most of the working-age people in the U.S.have private health insurance.

The price where the marginal benefit of search equals the marginal cost is called:

The lemons model may cause markets with asymmetric information:

A situation in which one side of an economic relationship takes undesirable or costly actions that the other side of the relationship cannot observe.This kind of situation is called:

Asymmetric information occurs if John who is buying Kim's used Toyota Corolla has the same amount of information as Kim.

Moral hazard occurs when individuals become more careful after purchasing insurance.

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

What is adverse selection?

Suppose more people drive SUVs because they believe they are safer than cars.The number of car related deaths may increase if:

The domination of the used car market by lemons is an example of the ________ problem.

What is a thin market?

Recall the application about the market for free-agent pitchers and how they are similar to used cars.In the market for used baseball pitchers:

Dan is trying to sell a high-quality used desktop computer,but all potential buyers are not willing to pay the price that Dan wants.This is likely due to a (an)________ problem.

In an asymmetric market for used cars,which of the following could be used to avoid a thin market?

One method of responding to the lemons effect is to invest in information.

The reservation price is the price at which a consumer is indifferent about additional search for a lower price.

How does the Internet auction site,eBay,address the asymmetric information problem?

What can a seller do to try to distinguish his product as a high-quality product if consumers are skeptical?

Most of the working-age people in the U.S.have private health insurance.

The price where the marginal benefit of search equals the marginal cost is called:

The lemons model may cause markets with asymmetric information:

A situation in which one side of an economic relationship takes undesirable or costly actions that the other side of the relationship cannot observe.This kind of situation is called:

Asymmetric information occurs if John who is buying Kim's used Toyota Corolla has the same amount of information as Kim.

Moral hazard occurs when individuals become more careful after purchasing insurance.

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