Question 1

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

Accepted Answer

A) ​blocking social network sites on company computers 
B) closed circuit TVs throughout a warehouse 
C) GPS tracking devices in repair trucks 
D) ​requiring physicians to be 'board certified' 
A) ​blocking social network sites on company computers 
B) closed circuit TVs throughout a warehouse 
C) GPS tracking devices in repair trucks 
D) ​requiring physicians to be 'board certified'

Question 2

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

Accepted Answer

A) ​blocking social network sites on company computers 
B) closed circuit TVs throughout a warehouse 
C) requiring a kitchen remodeling contractor to be 'bonded' 
D) ​listening in on call center conversations 
A) ​blocking social network sites on company computers 
B) closed circuit TVs throughout a warehouse 
C) requiring a kitchen remodeling contractor to be 'bonded' 
D) ​listening in on call center conversations

Question 3

​To keep employees from shirking,invest in greater monitoring

Accepted Answer

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

Question 4

​Many spouses complain that their partners put less effort into their relationship after getting married.This is an example of

Accepted Answer

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

Question 5

​There is an influenza epidemic at Sally's office.If she got the flu shot this winter,how does this affect her decision of going to work or working from home?

Accepted Answer

A) ​She would choose to work from home since the marginal cost of going to the office is high 
B) She would choose to go to work since the marginal benefit of working from home is too low 
C) She would stay home since the marginal cost of going to work so is too low 
D) ​She would stay home-who wants to go to work 
A) ​She would choose to work from home since the marginal cost of going to the office is high 
B) She would choose to go to work since the marginal benefit of working from home is too low 
C) She would stay home since the marginal cost of going to work so is too low 
D) ​She would stay home-who wants to go to work

Question 6

​A bank can decrease the degree of moral hazard if it

Accepted Answer

A) ​Monitors the borrowers behaviors 
B) Placing covenants on the loan 
C) Both of the above 
D) ​None of the above 
A) ​Monitors the borrowers behaviors 
B) Placing covenants on the loan 
C) Both of the above 
D) ​None of the above

Question 7

​A firm that screens candidates to determine how well they would work with limited supervision is afraid of facing

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 8

​You offer an extended warranty for your product that is purchased by a few customers.If the product typically fails 2% of the time,the claim rate will exceed 2% of warranty purchasers because

Accepted Answer

A) ​adverse selection will lead those who are more reckless to purchase the warranty 
B) moral hazard will lead those who purchase to be more reckless 
C) you systematically underestimate product failure rates 
D) ​Both A&B 
A) ​adverse selection will lead those who are more reckless to purchase the warranty 
B) moral hazard will lead those who purchase to be more reckless 
C) you systematically underestimate product failure rates 
D) ​Both A&B

Question 9

​US law was recently changed so that some airplane manufacturers are immune from liability from accidents involving their decades old aircraft,laying all the responsibility on the pilots.As a result

Accepted Answer

A) ​accident rates fell due to less adverse selection 
B) accident rates fell due to less moral hazard 
C) accident rates rose due to less adverse selection 
D) ​accident rates rose due to less moral hazard 
A) ​accident rates fell due to less adverse selection 
B) accident rates fell due to less moral hazard 
C) accident rates rose due to less adverse selection 
D) ​accident rates rose due to less moral hazard

Question 10

A shoe salesman working on commission must decide whether to work hard or shirk.Working hard would increase the probability of a sale from 20% to 70% but would cost him $5.If the average price of shoes is $100,what is the minimum commission rate would induce him to work hard?

Accepted Answer

A) ​4% 
B) 6% 
C) 8% 
D) ​10% 
A) ​4% 
B) 6% 
C) 8% 
D) ​10%

Question 11

Adverse selection is caused by​

Accepted Answer

A) ​Hidden actions 
B) Hidden information 
C) Both of the above 
D) ​None of the above 
A) ​Hidden actions 
B) Hidden information 
C) Both of the above 
D) ​None of the above

Question 12

​You offer an extended warranty for your product that is purchased by a few customers.If the product typically fails 2% of the time,

Accepted Answer

A) ​you should price the warranty at less than 2% of the product price 
B) you should price the warranty at exactly 2% of the product price 
C) you should price the warranty at more than 2% of the product price 
D) ​Cannot tell from this information 
A) ​you should price the warranty at less than 2% of the product price 
B) you should price the warranty at exactly 2% of the product price 
C) you should price the warranty at more than 2% of the product price 
D) ​Cannot tell from this information

Question 13

​The Department of Education noticed that for loans granted to students without any strings,the average grade point average of the students decreases dramatically over time,while the students whose loans renew only if they pass their courses tends to stay stable.This could be due to a

Accepted Answer

A) ​Adverse selection problem 
B) Moral hazard problem 
C) Typical college life phenomenon 
D) ​None of the above 
A) ​Adverse selection problem 
B) Moral hazard problem 
C) Typical college life phenomenon 
D) ​None of the above

Question 14

​Children who play in playgrounds with rubber surfaces instead of gravel surfaces tend to

Accepted Answer

A) ​Play safer 
B) Play rougher 
C) Not change their play patterns 
D) ​Not like playing in the playground 
A) ​Play safer 
B) Play rougher 
C) Not change their play patterns 
D) ​Not like playing in the playground

Question 15

​Many spouses complain that their partners tend to "let themselves go" after getting married.This is an example of

Accepted Answer

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

Question 16

​Smart Sam can make a $200 investment that yields $1000 50% of the time and $0 50% of the time.What is his expected return on the investment?

Accepted Answer

A) ​$200 
B) $300 
C) $400 
D) ​$500 
A) ​$200 
B) $300 
C) $400 
D) ​$500

Question 17

Because employer-provided health insurance was too expensive,a major employer decided to self-insure and simply pay for medical bills itself rather than a premium to an insurance company.As a result

Accepted Answer

A) ​they are more likely to institute a wellness program for employees 
B) they are less likely to institute a wellness program for emp 
C) they are indifferent with regards wellness programs 
D) ​they will regret this decision 
A) ​they are more likely to institute a wellness program for employees 
B) they are less likely to institute a wellness program for emp 
C) they are indifferent with regards wellness programs 
D) ​they will regret this decision

Question 18

​The Value of Call Monitoring
Comcast's call center had a problem with unresolved incidents.Customers who called in for technical help often had to make follow-up calls because the first recommended solution did not work.Since the call center staff were expected to handle an average of 10 calls per hour,Comcast suspected that calls were being terminated before the complaint had been resolved.As a possible solution,they hired supervisors to randomly listen into calls so as to better monitor inappropriate call terminations at a cost of $8,000 per month.This cut down the need for follow-up calls and,more importantly,increased customer retention.The number of customers who called in a complaint and would terminate services within three months was cut from 150 to 130.How large must the present value of a retained customer's contribution margin be for additional monitoring to be profitable?

Accepted Answer

Comcast retained an additional 20 custom

Question 19

​Economists discourage homeowner bailouts because

Accepted Answer

A) ​They encourage irresponsible borrowings 
B) It increases moral hazard among borrowers 
C) It punishes responsible borrowers 
D) ​All of the above 
A) ​They encourage irresponsible borrowings 
B) It increases moral hazard among borrowers 
C) It punishes responsible borrowers 
D) ​All of the above

Question 20

​Safe drivers buying "accident forgiveness" insurance tend to

Accepted Answer

A) ​Become even safer drivers 
B) Engage in more risky driving 
C) Engage in less risky driving 
D) ​Not change their driving patterns 
A) ​Become even safer drivers 
B) Engage in more risky driving 
C) Engage in less risky driving 
D) ​Not change their driving patterns

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

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

To keep employees from shirking,invest in greater monitoring

Many spouses complain that their partners put less effort into their relationship after getting married.This is an example of

There is an influenza epidemic at Sally's office.If she got the flu shot this winter,how does this affect her decision of going to work or working from home?

A bank can decrease the degree of moral hazard if it

A firm that screens candidates to determine how well they would work with limited supervision is afraid of facing

You offer an extended warranty for your product that is purchased by a few customers.If the product typically fails 2% of the time,the claim rate will exceed 2% of warranty purchasers because

US law was recently changed so that some airplane manufacturers are immune from liability from accidents involving their decades old aircraft,laying all the responsibility on the pilots.As a result

A shoe salesman working on commission must decide whether to work hard or shirk.Working hard would increase the probability of a sale from 20% to 70% but would cost him $5.If the average price of shoes is $100,what is the minimum commission rate would induce him to work hard?

Adverse selection is caused by

You offer an extended warranty for your product that is purchased by a few customers.If the product typically fails 2% of the time,

The Department of Education noticed that for loans granted to students without any strings,the average grade point average of the students decreases dramatically over time,while the students whose loans renew only if they pass their courses tends to stay stable.This could be due to a

Children who play in playgrounds with rubber surfaces instead of gravel surfaces tend to

Many spouses complain that their partners tend to "let themselves go" after getting married.This is an example of

Smart Sam can make a $200 investment that yields $1000 50% of the time and $0 50% of the time.What is his expected return on the investment?

Because employer-provided health insurance was too expensive,a major employer decided to self-insure and simply pay for medical bills itself rather than a premium to an insurance company.As a result

Economists discourage homeowner bailouts because

Safe drivers buying "accident forgiveness" insurance tend to

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

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

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

​To keep employees from shirking,invest in greater monitoring

​Many spouses complain that their partners put less effort into their relationship after getting married.This is an example of

​There is an influenza epidemic at Sally's office.If she got the flu shot this winter,how does this affect her decision of going to work or working from home?

​A bank can decrease the degree of moral hazard if it

​A firm that screens candidates to determine how well they would work with limited supervision is afraid of facing

​You offer an extended warranty for your product that is purchased by a few customers.If the product typically fails 2% of the time,the claim rate will exceed 2% of warranty purchasers because

​US law was recently changed so that some airplane manufacturers are immune from liability from accidents involving their decades old aircraft,laying all the responsibility on the pilots.As a result

A shoe salesman working on commission must decide whether to work hard or shirk.Working hard would increase the probability of a sale from 20% to 70% but would cost him $5.If the average price of shoes is $100,what is the minimum commission rate would induce him to work hard?

Adverse selection is caused by​

​You offer an extended warranty for your product that is purchased by a few customers.If the product typically fails 2% of the time,

​The Department of Education noticed that for loans granted to students without any strings,the average grade point average of the students decreases dramatically over time,while the students whose loans renew only if they pass their courses tends to stay stable.This could be due to a

​Children who play in playgrounds with rubber surfaces instead of gravel surfaces tend to

​Many spouses complain that their partners tend to "let themselves go" after getting married.This is an example of

​Smart Sam can make a $200 investment that yields $1000 50% of the time and $0 50% of the time.What is his expected return on the investment?

Because employer-provided health insurance was too expensive,a major employer decided to self-insure and simply pay for medical bills itself rather than a premium to an insurance company.As a result

​Economists discourage homeowner bailouts because

​Safe drivers buying "accident forgiveness" insurance tend to

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

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

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

To keep employees from shirking,invest in greater monitoring

Many spouses complain that their partners put less effort into their relationship after getting married.This is an example of

There is an influenza epidemic at Sally's office.If she got the flu shot this winter,how does this affect her decision of going to work or working from home?

A bank can decrease the degree of moral hazard if it

A firm that screens candidates to determine how well they would work with limited supervision is afraid of facing

You offer an extended warranty for your product that is purchased by a few customers.If the product typically fails 2% of the time,the claim rate will exceed 2% of warranty purchasers because

US law was recently changed so that some airplane manufacturers are immune from liability from accidents involving their decades old aircraft,laying all the responsibility on the pilots.As a result

Adverse selection is caused by

You offer an extended warranty for your product that is purchased by a few customers.If the product typically fails 2% of the time,

The Department of Education noticed that for loans granted to students without any strings,the average grade point average of the students decreases dramatically over time,while the students whose loans renew only if they pass their courses tends to stay stable.This could be due to a

Children who play in playgrounds with rubber surfaces instead of gravel surfaces tend to

Many spouses complain that their partners tend to "let themselves go" after getting married.This is an example of

Smart Sam can make a $200 investment that yields $1000 50% of the time and $0 50% of the time.What is his expected return on the investment?

Economists discourage homeowner bailouts because

Safe drivers buying "accident forgiveness" insurance tend to