Question 1

Which of the following would be considered a contingent contract?

Accepted Answer

A) A piece rate contract 
B) A profit-sharing contract 
C) A contact with a bonus 
D) All of the above. 
A) A piece rate contract 
B) A profit-sharing contract 
C) A contact with a bonus 
D) All of the above.

Question 2

If a principal and agent enter into a fixed-fee contract where the agent pays the principal a licensing fee,

Accepted Answer

A) the principal bears all the risk. 
B) the agent bears all the risk. 
C) the principal and agent share the risk. 
D) Unable to determine with the information given. 
A) the principal bears all the risk. 
B) the agent bears all the risk. 
C) the principal and agent share the risk. 
D) Unable to determine with the information given.

Question 3

If adverse selection exists in a market,

Accepted Answer

A) it increases consumer surplus but reduces producer surplus. 
B) it reduces consumer and producer surplus. 
C) it reduces producer surplus but has no impact on consumer surplus. 
D) it increases both consumer and producer surplus. 
A) it increases consumer surplus but reduces producer surplus. 
B) it reduces consumer and producer surplus. 
C) it reduces producer surplus but has no impact on consumer surplus. 
D) it increases both consumer and producer surplus.

Question 4

Which of the following is most likely to be a feature of a contingent contract?

Accepted Answer

A) A CFO is paid $250,000 if he does a good job. 
B) A VP of Sales is given options as part of her salary. 
C) Both A and B. 
D) None of the above. 
A) A CFO is paid $250,000 if he does a good job. 
B) A VP of Sales is given options as part of her salary. 
C) Both A and B. 
D) None of the above.

Question 5

What is one of the most important benefits of the Internet?

Accepted Answer

A) The Internet has increased asymmetric information. 
B) The Internet has reduced asymmetric information. 
C) The Internet has increased moral hazard. 
D) The Internet has increased transaction costs. 
A) The Internet has increased asymmetric information. 
B) The Internet has reduced asymmetric information. 
C) The Internet has increased moral hazard. 
D) The Internet has increased transaction costs.

Question 6

If a student achieves a high SAT score, this

Accepted Answer

A) sends a signal to a college that the applicant will be a good college student. 
B) does not act as a screening device. 
C) is a moral hazard. 
D) provides a college with no information. 
A) sends a signal to a college that the applicant will be a good college student. 
B) does not act as a screening device. 
C) is a moral hazard. 
D) provides a college with no information.

Question 7

When a person has health insurance, they often have to pay nothing or very little (called a "copay")to see a doctor. This might result in

Accepted Answer

A) their being overly healthy. 
B) a principal-agent problem. 
C) some moral hazard, since people might overuse the benefit. 
D) an adverse selection problem. 
A) their being overly healthy. 
B) a principal-agent problem. 
C) some moral hazard, since people might overuse the benefit. 
D) an adverse selection problem.

Question 8

In a contingent contract,

Accepted Answer

A) the risk-neutral party bears the risk. 
B) monitoring is not possible. 
C) the principal will be at a disadvantage. 
D) the payoffs are dependent upon another variable, such as revenue or profit. 
A) the risk-neutral party bears the risk. 
B) monitoring is not possible. 
C) the principal will be at a disadvantage. 
D) the payoffs are dependent upon another variable, such as revenue or profit.

Question 9

In the presence of asymmetric information, a fixed-fee contract

Accepted Answer

A) achieves production efficiency. 
B) can lead to opportunistic behavior on the part of the agent. 
C) is impossible to write. 
D) will result in the principal earning all of the profit. 
A) achieves production efficiency. 
B) can lead to opportunistic behavior on the part of the agent. 
C) is impossible to write. 
D) will result in the principal earning all of the profit.

Question 10

If all firms pay an efficiency wage, then

Accepted Answer

A) there is no cost to shirking because the shirking worker can receive his high wage at another firm after being caught and fired. 
B) the macroeconomy would enjoy a prolonged period of near-zero unemployment. 
C) there is a cost to shirking because the efficiency wage is less than it would have been if only a few firms paid it. 
D) there is a cost to shirking because the shirking worker will spend a greater time unemployed after being caught and fired. 
A) there is no cost to shirking because the shirking worker can receive his high wage at another firm after being caught and fired. 
B) the macroeconomy would enjoy a prolonged period of near-zero unemployment. 
C) there is a cost to shirking because the efficiency wage is less than it would have been if only a few firms paid it. 
D) there is a cost to shirking because the shirking worker will spend a greater time unemployed after being caught and fired.

Question 11

Which of the following workers is most likely to be asked to post a performance bond?

Accepted Answer

A) Car salesperson 
B) firefighter 
C) Armored car guard 
D) Basketball coach 
A) Car salesperson 
B) firefighter 
C) Armored car guard 
D) Basketball coach

Question 12

If a firm has established monitoring devices that have a 50% chance of detecting shirking, and an employee gains $5,000 from shirking, the employer can deter shirking by having employees post a bond equal to

Accepted Answer

A) $2,500. 
B) $5,000. 
C) $10,000. 
D) $50,000. 
A) $2,500. 
B) $5,000. 
C) $10,000. 
D) $50,000.

Question 13

Author A accepts a $5,000 advance from a publisher and a 10% royalty after 5,000 books are sold. Author B foregoes the publisher's advance and negotiates for a 15% royalty on all books sold. Author C decides to self-publish his book and keep 100% of all sales revenue. In what order of risk aversion (from most to least)would you rank these authors?

Accepted Answer

A) Author A, Author B, Author C 
B) Author A, Author C, Author B 
C) Author B, Author A, Author C 
D) Author C, Author B, Author A 
A) Author A, Author B, Author C 
B) Author A, Author C, Author B 
C) Author B, Author A, Author C 
D) Author C, Author B, Author A

Question 14

If manager performance is easily observable, then

Accepted Answer

A) profits will be maximized for the firm. 
B) the owner can directly reward the manager. 
C) the manager will attempt to manipulate the reported profit. 
D) the firm's stock price will go up. 
A) profits will be maximized for the firm. 
B) the owner can directly reward the manager. 
C) the manager will attempt to manipulate the reported profit. 
D) the firm's stock price will go up.

Which of the following would be considered a contingent contract?

If a principal and agent enter into a fixed-fee contract where the agent pays the principal a licensing fee,

If adverse selection exists in a market,

Which of the following is most likely to be a feature of a contingent contract?

What is one of the most important benefits of the Internet?

If a student achieves a high SAT score, this

When a person has health insurance, they often have to pay nothing or very little (called a "copay")to see a doctor. This might result in

In a contingent contract,

In the presence of asymmetric information, a fixed-fee contract

If all firms pay an efficiency wage, then

Which of the following workers is most likely to be asked to post a performance bond?

If a firm has established monitoring devices that have a 50% chance of detecting shirking, and an employee gains $5,000 from shirking, the employer can deter shirking by having employees post a bond equal to

If manager performance is easily observable, then

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Costs

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Managerial Decision-Making Under Uncertainty

Government and Business

Global Business

Filters

Exam 15: Asymmetric Information

Which of the following would be considered a contingent contract?

If a principal and agent enter into a fixed-fee contract where the agent pays the principal a licensing fee,

If adverse selection exists in a market,

Which of the following is most likely to be a feature of a contingent contract?

What is one of the most important benefits of the Internet?

If a student achieves a high SAT score, this

When a person has health insurance, they often have to pay nothing or very little (called a "copay")to see a doctor. This might result in

In a contingent contract,

In the presence of asymmetric information, a fixed-fee contract

If all firms pay an efficiency wage, then

Which of the following workers is most likely to be asked to post a performance bond?

If a firm has established monitoring devices that have a 50% chance of detecting shirking, and an employee gains $5,000 from shirking, the employer can deter shirking by having employees post a bond equal to

If manager performance is easily observable, then

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Costs

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Managerial Decision-Making Under Uncertainty

Government and Business

Global Business

Filters