Question 1

​Which is NOT an example of moral hazard

Accepted Answer

A) ​people eat less at all-you-can-eat buffets 
B) loggers clear-cut a tract of land when paying a fixed price rather than when paying per tree felled 
C) Drivers of heavier,safer cares are more likely to run stop signs 
D) ​workers on commission work harder than those paid an hourly wage 
A) ​people eat less at all-you-can-eat buffets 
B) loggers clear-cut a tract of land when paying a fixed price rather than when paying per tree felled 
C) Drivers of heavier,safer cares are more likely to run stop signs 
D) ​workers on commission work harder than those paid an hourly wage

Question 2

​To keep employees from shirking,invest in greater monitoring

Accepted Answer

A) if monitoring is inexpensive relative to its benefits 
B) especially when monitoring is not very efficient 
C) when employees respond well to incentive contracts 
D) when incentives solve both moral hazard and adverse selection problems with employees 
A) if monitoring is inexpensive relative to its benefits 
B) especially when monitoring is not very efficient 
C) when employees respond well to incentive contracts 
D) when incentives solve both moral hazard and adverse selection problems with employees

Question 3

​Scope of Services
An apartment owner has contracted for lawn mowing services for a number of apartment complexes he owns.He negotiated a price per month but the scope of services to be performed remained a bit vague.Why is he disappointed that the winning contractor provides less than the desired level of services?

Accepted Answer

This is a moral hazard issue.Once the co

Question 4

​Sam,after taking a $200 loan from the bank to finance an investment that pays $1000 50% of the time and $0 50% of the time at a 100% interest,discovers another riskier investment that pays out $5,000 but only 10% of the time,while the other 90% of the time it pays zero.Would the he want to switch to the riskier investment?

Accepted Answer

A) ​Yes because his return has increased 
B) No because his liability to the bank has increased 
C) No because his return has decreased 
D) ​None of the above 
A) ​Yes because his return has increased 
B) No because his liability to the bank has increased 
C) No because his return has decreased 
D) ​None of the above

Question 5

​Which of the following is true?

Accepted Answer

A) ​Borrowers take bigger risks with their money than they would with other peoples' money 
B) Borrowers take bigger risks with other peoples' money than they would with their own 
C) Borrowers take big risks on investments regardless of whether it is their own money or not 
D) ​Borrowers should not be investing at all 
A) ​Borrowers take bigger risks with their money than they would with other peoples' money 
B) Borrowers take bigger risks with other peoples' money than they would with their own 
C) Borrowers take big risks on investments regardless of whether it is their own money or not 
D) ​Borrowers should not be investing at all

Question 6

​Individuals with homeowner's insurance tend to be more forgetful about locking their possessions safely before heading out.This is an example of

Accepted Answer

A) ​Adverse selection 
B) Moral hazard 
C) Screening 
D) ​None of the above 
A) ​Adverse selection 
B) Moral hazard 
C) Screening 
D) ​None of the above

Question 7

​An example of moral hazard is

Accepted Answer

A) ​people drive as carefully in icy conditions with antilock brakes as without 
B) people drive as safely with more airbags as without 
C) football players with safer helmets 'spear' with their heads more often when tackling 
D) ​people read the medicine warnings as carefully when self-medicating as with a doctor's prescription 
A) ​people drive as carefully in icy conditions with antilock brakes as without 
B) people drive as safely with more airbags as without 
C) football players with safer helmets 'spear' with their heads more often when tackling 
D) ​people read the medicine warnings as carefully when self-medicating as with a doctor's prescription

Question 8

​Which is NOT an example of moral hazard

Accepted Answer

A) ​people eat more at all-you-can-eat buffets 
B) loggers select the most profitable trees to harvest even when they are paying a fixed fee 
C) Drivers of heavier,safer cares are more likely to run stop signs 
D) ​workers on commission work harder than those paid an hourly wage 
A) ​people eat more at all-you-can-eat buffets 
B) loggers select the most profitable trees to harvest even when they are paying a fixed fee 
C) Drivers of heavier,safer cares are more likely to run stop signs 
D) ​workers on commission work harder than those paid an hourly wage

Question 9

One difference between moral hazard and adverse selection is

Accepted Answer

A) ​Moral hazard has to do with unobservable characteristics of individuals 
B) Adverse selection has to do with unobservable actions of individuals 
C) Adverse selection occurs when individuals least appropriate for positions are most likely to apply for them 
D) ​Adverse selection is when you choose the wrong answer on a test 
A) ​Moral hazard has to do with unobservable characteristics of individuals 
B) Adverse selection has to do with unobservable actions of individuals 
C) Adverse selection occurs when individuals least appropriate for positions are most likely to apply for them 
D) ​Adverse selection is when you choose the wrong answer on a test

Question 10

​An example of moral hazard is

Accepted Answer

A) ​people drive as carefully in icy conditions with antilock brakes as without 
B) people drive less safely with more airbags than without 
C) football players avoid 'spearing' with their heads even with safer helmets 
D) ​people read the medicine warnings as carefully when self-medicating as with a doctor's prescription 
A) ​people drive as carefully in icy conditions with antilock brakes as without 
B) people drive less safely with more airbags than without 
C) football players avoid 'spearing' with their heads even with safer helmets 
D) ​people read the medicine warnings as carefully when self-medicating as with a doctor's prescription

Question 11

​Rental Car Maintenance
Why do rental cars require more maintenance in their first 50,000 miles than comparable cars driven by private owners?

Accepted Answer

This is a moral hazard issue.D

Question 12

​Investment in Musical Acts
Signing new music acts can be highly speculative.Record producers at music studios have to get budget approval before they sign a new act to a recording deal.Most acts perform a tried and true form of popular music in which record sales can be pretty well predicted.However,once they get approval for their budgets,why do producers sometimes sign riskier acts who either flop or "break-out" into the next sensation?

Accepted Answer

This is a moral hazard issue.Record prod

Question 13

​Lazy Lucy's parents decided that they would only pay her tuition if she passes all her classes.They would stop paying her tuition if she procrastinates and fails her courses.Lucy's parent's decision is a solution to a ________problem.

Accepted Answer

A) ​Adverse selection 
B) Moral hazard 
C) Forced bankruptcy 
D) ​None of the above 
A) ​Adverse selection 
B) Moral hazard 
C) Forced bankruptcy 
D) ​None of the above

Question 14

Moral hazard in a transaction hurts​

Accepted Answer

A) ​The seller only 
B) The buyer only 
C) Both parties 
D) ​None of the parties 
A) ​The seller only 
B) The buyer only 
C) Both parties 
D) ​None of the parties

Question 15

​Use the following setup for question
Tom wants to avoid any accidents on the work floor of his factory.If an accident does occur,it would cost him $500,000 in damages.Installing safety equipment would decrease the probability of an accident occurring from 20% to 10%.However,the equipment costs $20,000 to install. 
-​What is his expected loss after installing the safety equipment

Accepted Answer

A) ​$20,000 
B) $50,000 
C) $100,000 
D) ​$125,000 
A) ​$20,000 
B) $50,000 
C) $100,000 
D) ​$125,000

Question 16

​Firms that have high cost of monitoring,choose their employees much more carefully because

Accepted Answer

A) ​They are afraid that the employee would be too productive 
B) They are  more confident that after getting the job,the employee would not shirk 
C) They are afraid that without screening,the employee would be more likely to shirk 
D) ​B & C 
A) ​They are afraid that the employee would be too productive 
B) They are  more confident that after getting the job,the employee would not shirk 
C) They are afraid that without screening,the employee would be more likely to shirk 
D) ​B & C

Question 17

​The following is NOT an example of a potential monitoring solution to moral hazard

Accepted Answer

A) ​a pre-hire typing test for clerical employees 
B) closed circuit TVs throughout a warehouse 
C) GPS tracking devices in repair trucks 
D) ​listening in on call center conversations 
A) ​a pre-hire typing test for clerical employees 
B) closed circuit TVs throughout a warehouse 
C) GPS tracking devices in repair trucks 
D) ​listening in on call center conversations

Question 18

​____________is the problem of preventing you from acting opportunistically after buying insurance

Accepted Answer

A) ​Moral hazard 
B) Adverse selection 
C) Decision making 
D) ​None of the above 
A) ​Moral hazard 
B) Adverse selection 
C) Decision making 
D) ​None of the above

Question 19

The introduction of seat belts increased the number of accidents,even though the number of fatalities decreased.This is most likely a result of​

Accepted Answer

A) ​Moral hazard 
B) Adverse selection 
C) seat belts distracting drivers 
D) ​None of the above 
A) ​Moral hazard 
B) Adverse selection 
C) seat belts distracting drivers 
D) ​None of the above

Question 20

​Progressive Insurance's 'Tripsense' monitors driving patterns of the people who purchase the related insurance policy.This lowers insurance costs because

Accepted Answer

A) ​only less reckless drivers will accept the device 
B) only more reckless drivers will accept the device 
C) drivers will believe they can now drive more recklessly 
D) ​it does not affect care in driving 
A) ​only less reckless drivers will accept the device 
B) only more reckless drivers will accept the device 
C) drivers will believe they can now drive more recklessly 
D) ​it does not affect care in driving

Which is NOT an example of moral hazard

To keep employees from shirking,invest in greater monitoring

Which of the following is true?

Individuals with homeowner's insurance tend to be more forgetful about locking their possessions safely before heading out.This is an example of

An example of moral hazard is

Which is NOT an example of moral hazard

One difference between moral hazard and adverse selection is

An example of moral hazard is

Rental Car Maintenance Why do rental cars require more maintenance in their first 50,000 miles than comparable cars driven by private owners?

Lazy Lucy's parents decided that they would only pay her tuition if she passes all her classes.They would stop paying her tuition if she procrastinates and fails her courses.Lucy's parent's decision is a solution to a ________problem.

Moral hazard in a transaction hurts

Firms that have high cost of monitoring,choose their employees much more carefully because

The following is NOT an example of a potential monitoring solution to moral hazard

____________is the problem of preventing you from acting opportunistically after buying insurance

The introduction of seat belts increased the number of accidents,even though the number of fatalities decreased.This is most likely a result of

Progressive Insurance's 'Tripsense' monitors driving patterns of the people who purchase the related insurance policy.This lowers insurance costs because

The One Lessor of Business

Benefits, Costs, and Decisions

Extent How Much Decisions

Investment Decisions: Look Ahead and Reason Back

Simple Pricing

Economies of Scale and Scope

Understanding Markets and Industry Changes

Market Structure and Long Run Equilibrium

Strategy: the Quest to Keep Profit From Eroding

Foreign Exchange, Trade, and Bubbles

More Realistic and Complex Pricing

Direct Price Discrimination

Strategic Games

Bargaining

Making Decisions With Uncertainty

Auctions

The Problem of Adverse Selection

Getting Employees to Work in the Firms Best Interest

Getting Divisions to Work in the Firms Best Interest

Managing Vertical Relationships

Filters

Exam 18: The Problem of Moral Hazard

​Which is NOT an example of moral hazard

​To keep employees from shirking,invest in greater monitoring

​Which of the following is true?

​Individuals with homeowner's insurance tend to be more forgetful about locking their possessions safely before heading out.This is an example of

​An example of moral hazard is

​Which is NOT an example of moral hazard

One difference between moral hazard and adverse selection is

​An example of moral hazard is

​Rental Car Maintenance Why do rental cars require more maintenance in their first 50,000 miles than comparable cars driven by private owners?

​Lazy Lucy's parents decided that they would only pay her tuition if she passes all her classes.They would stop paying her tuition if she procrastinates and fails her courses.Lucy's parent's decision is a solution to a ________problem.

Moral hazard in a transaction hurts​

​Firms that have high cost of monitoring,choose their employees much more carefully because

​The following is NOT an example of a potential monitoring solution to moral hazard

​____________is the problem of preventing you from acting opportunistically after buying insurance

The introduction of seat belts increased the number of accidents,even though the number of fatalities decreased.This is most likely a result of​

​Progressive Insurance's 'Tripsense' monitors driving patterns of the people who purchase the related insurance policy.This lowers insurance costs because

The One Lessor of Business

Benefits, Costs, and Decisions

Extent How Much Decisions

Investment Decisions: Look Ahead and Reason Back

Simple Pricing

Economies of Scale and Scope

Understanding Markets and Industry Changes

Market Structure and Long Run Equilibrium

Strategy: the Quest to Keep Profit From Eroding

Foreign Exchange, Trade, and Bubbles

More Realistic and Complex Pricing

Direct Price Discrimination

Strategic Games

Bargaining

Making Decisions With Uncertainty

Auctions

The Problem of Adverse Selection

Getting Employees to Work in the Firms Best Interest

Getting Divisions to Work in the Firms Best Interest

Managing Vertical Relationships

Filters

Which is NOT an example of moral hazard

To keep employees from shirking,invest in greater monitoring

Which of the following is true?

Individuals with homeowner's insurance tend to be more forgetful about locking their possessions safely before heading out.This is an example of

An example of moral hazard is

Which is NOT an example of moral hazard

An example of moral hazard is

Rental Car Maintenance Why do rental cars require more maintenance in their first 50,000 miles than comparable cars driven by private owners?

Lazy Lucy's parents decided that they would only pay her tuition if she passes all her classes.They would stop paying her tuition if she procrastinates and fails her courses.Lucy's parent's decision is a solution to a ________problem.

Moral hazard in a transaction hurts

Firms that have high cost of monitoring,choose their employees much more carefully because

The following is NOT an example of a potential monitoring solution to moral hazard

____________is the problem of preventing you from acting opportunistically after buying insurance

The introduction of seat belts increased the number of accidents,even though the number of fatalities decreased.This is most likely a result of

Progressive Insurance's 'Tripsense' monitors driving patterns of the people who purchase the related insurance policy.This lowers insurance costs because