Question 1

​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 efficient 
C) when employees respond well 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 efficient 
C) when employees respond well to incentive contracts 
D) ​when incentives solve both moral hazard and adverse selection problems with employees

Question 2

​Moral hazard 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 3

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.Which one of the following can it use as a solution?​

Accepted Answer

A) ​Renew the loans only if the students pass their courses 
B) Renew the loans regardless of students' passing 
C) Never renew the loans 
D) ​Shut down the Department of Education 
A) ​Renew the loans only if the students pass their courses 
B) Renew the loans regardless of students' passing 
C) Never renew the loans 
D) ​Shut down the Department of Education

Question 4

​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 is when individuals change their behaviors because of a contract 
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 is when individuals change their behaviors because of a contract 
D) ​Adverse selection is when you choose the wrong answer on a test

Question 5

One difference between moral hazard and adverse selection is

Accepted Answer

A) ​Moral hazard has to do with unobservable characteristics of individuals 
B) Moral hazard has to do with unobservable actions of individuals 
C) Adverse selection is individuals change their behaviors because of a contract 
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) Moral hazard has to do with unobservable actions of individuals 
C) Adverse selection is individuals change their behaviors because of a contract 
D) ​Adverse selection is when you choose the wrong answer on a test

Question 6

​For a mortgage lender that makes mortgage loans to borrowers,which one of the following would be an example of adverse selection?

Accepted Answer

A) ​After the loan has been made,individuals become careless with their finances 
B) Individuals most likely to default are the ones most likely to apply for the loan 
C) Borrowers investing their loan proceeds differently than the bank requires 
D) ​None of the above 
A) ​After the loan has been made,individuals become careless with their finances 
B) Individuals most likely to default are the ones most likely to apply for the loan 
C) Borrowers investing their loan proceeds differently than the bank requires 
D) ​None of the above

Question 7

​Surgical weight loss procedures are cheaper and safer than ever.As a consequence,we could expect:

Accepted Answer

A) ​An increase in the amount of care individuals take of their diet 
B) A decrease in the amount of care individuals take of their diet 
C) An increase in pre-surgery obesity 
D) ​Both B&C 
A) ​An increase in the amount of care individuals take of their diet 
B) A decrease in the amount of care individuals take of their diet 
C) An increase in pre-surgery obesity 
D) ​Both B&C

Question 8

A firm deciding to hire a secretary,bases its decision on how well the candidate is trained on certain software.This practice addresses:​

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 9

​One difference between moral hazard and adverse selection is

Accepted Answer

A) ​Adverse selection has to do with unobservable characteristics of individuals 
B) Moral hazard has to do with unobservable actions of individuals 
C) Adverse selection is individuals change their behaviors because of a contract 
D) ​Only A&B 
A) ​Adverse selection has to do with unobservable characteristics of individuals 
B) Moral hazard has to do with unobservable actions of individuals 
C) Adverse selection is individuals change their behaviors because of a contract 
D) ​Only A&B

Question 10

​An example of moral hazard is

Accepted Answer

A) ​A taxi driver paid per mile taking a longer route than necessary 
B) a piece-rate garment worker shirking more than a per hour worker 
C) an hourly salesman working harder than a commission salesman 
D) ​an author on contract going to as many book signings as one with a percentage royalty rate 
A) ​A taxi driver paid per mile taking a longer route than necessary 
B) a piece-rate garment worker shirking more than a per hour worker 
C) an hourly salesman working harder than a commission salesman 
D) ​an author on contract going to as many book signings as one with a percentage royalty rate

Question 11

​Solving a moral hazard problem in a transaction would benefit

Accepted Answer

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

Question 12

​The Value of Bonuses
Oscar's Outdoor Signage employs salesmen to find new advertisers for existing signs.In an average month,salaried sales staff can keep 80 of 100 signs under contract in a given month.When Oscar experimented with a bonus of $100 for each sign under contract this was increased to 90 of 100 signs.How large must the contribution margin on a sign be to make it profitable to offer the bonuses?

Accepted Answer

Oscar paid $100×90= $9,000 in bonuses to

Question 13

​To incentivize R&D,the government proposes to take on a company's costs if its product does not succeed.This would lead to

Accepted Answer

A) ​The company developing a lot more products with a low risk of failure 
B) The company developing a lot more products with a high risk of failure 
C) The company developing no high risk products 
D) ​The company going bankrupt 
A) ​The company developing a lot more products with a low risk of failure 
B) The company developing a lot more products with a high risk of failure 
C) The company developing no high risk products 
D) ​The company going bankrupt

Question 14

​There is an influenza epidemic at Sally's office.If she got the flu shot this winter,Sally would still go to the office instead of working from home even though it increases the likelihood of her catching the flu.This is an example of a

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 15

________is the problem of separating good from bad drivers​

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 16

​For a mortgage lender that makes mortgage loans to borrowers,which one of the following would be an example of moral hazard?

Accepted Answer

A) ​After the loan has been made,individuals become careless with their finances 
B) Individuals most likely to default are the ones most likely to apply for the loan 
C) Lenders performing a credit check on all potential borrowers 
D) ​None of the above 
A) ​After the loan has been made,individuals become careless with their finances 
B) Individuals most likely to default are the ones most likely to apply for the loan 
C) Lenders performing a credit check on all potential borrowers 
D) ​None of the above

Question 17

​Which is NOT an example of moral hazard

Accepted Answer

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

Question 18

An example of moral hazard is​

Accepted Answer

A) ​workers working diligently even though the boss is not looking 
B) health care insured dieting and exercising 
C) drivers of safer cars turning their phones off before driving 
D) ​borrowers investing their loan proceeds differently than the bank requires 
A) ​workers working diligently even though the boss is not looking 
B) health care insured dieting and exercising 
C) drivers of safer cars turning their phones off before driving 
D) ​borrowers investing their loan proceeds differently than the bank requires

Question 19

​An example of moral hazard is

Accepted Answer

A) ​workers working diligently even though the boss is not looking 
B) health care insured employees forgoing their diet and exercise 
C) drivers of safer cars turning their phones off before driving 
D) ​borrowers investing their loan proceeds exactly as the bank requires 
A) ​workers working diligently even though the boss is not looking 
B) health care insured employees forgoing their diet and exercise 
C) drivers of safer cars turning their phones off before driving 
D) ​borrowers investing their loan proceeds exactly as the bank requires

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 more reckless drivers will accept the device 
B) drivers will want to drive more carefully knowing they are being monitored 
C) drivers will believe they can now drive more recklessly 
D) ​it does not affect care in driving 
A) ​only more reckless drivers will accept the device 
B) drivers will want to drive more carefully knowing they are being monitored 
C) drivers will believe they can now drive more recklessly 
D) ​it does not affect care in driving

To keep employees from shirking,invest in greater monitoring

Moral hazard is caused by

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.Which one of the following can it use as a solution?

One difference between moral hazard and adverse selection is

One difference between moral hazard and adverse selection is

For a mortgage lender that makes mortgage loans to borrowers,which one of the following would be an example of adverse selection?

Surgical weight loss procedures are cheaper and safer than ever.As a consequence,we could expect:

A firm deciding to hire a secretary,bases its decision on how well the candidate is trained on certain software.This practice addresses:

One difference between moral hazard and adverse selection is

An example of moral hazard is

Solving a moral hazard problem in a transaction would benefit

To incentivize R&D,the government proposes to take on a company's costs if its product does not succeed.This would lead to

There is an influenza epidemic at Sally's office.If she got the flu shot this winter,Sally would still go to the office instead of working from home even though it increases the likelihood of her catching the flu.This is an example of a

________is the problem of separating good from bad drivers

For a mortgage lender that makes mortgage loans to borrowers,which one of the following would be an example of moral hazard?

Which is NOT an example of moral hazard

An example of moral hazard is

An example of moral hazard is

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

​To keep employees from shirking,invest in greater monitoring

​Moral hazard is caused by

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.Which one of the following can it use as a solution?​

​One difference between moral hazard and adverse selection is

One difference between moral hazard and adverse selection is

​For a mortgage lender that makes mortgage loans to borrowers,which one of the following would be an example of adverse selection?

​Surgical weight loss procedures are cheaper and safer than ever.As a consequence,we could expect:

A firm deciding to hire a secretary,bases its decision on how well the candidate is trained on certain software.This practice addresses:​

​One difference between moral hazard and adverse selection is

​An example of moral hazard is

​Solving a moral hazard problem in a transaction would benefit

​To incentivize R&D,the government proposes to take on a company's costs if its product does not succeed.This would lead to

​There is an influenza epidemic at Sally's office.If she got the flu shot this winter,Sally would still go to the office instead of working from home even though it increases the likelihood of her catching the flu.This is an example of a

________is the problem of separating good from bad drivers​

​For a mortgage lender that makes mortgage loans to borrowers,which one of the following would be an example of moral hazard?

​Which is NOT an example of moral hazard

An example of moral hazard is​

​An example of moral hazard is

​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

To keep employees from shirking,invest in greater monitoring

Moral hazard is caused by

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.Which one of the following can it use as a solution?

One difference between moral hazard and adverse selection is

For a mortgage lender that makes mortgage loans to borrowers,which one of the following would be an example of adverse selection?

Surgical weight loss procedures are cheaper and safer than ever.As a consequence,we could expect:

A firm deciding to hire a secretary,bases its decision on how well the candidate is trained on certain software.This practice addresses:

One difference between moral hazard and adverse selection is

An example of moral hazard is

Solving a moral hazard problem in a transaction would benefit

To incentivize R&D,the government proposes to take on a company's costs if its product does not succeed.This would lead to

There is an influenza epidemic at Sally's office.If she got the flu shot this winter,Sally would still go to the office instead of working from home even though it increases the likelihood of her catching the flu.This is an example of a

________is the problem of separating good from bad drivers

For a mortgage lender that makes mortgage loans to borrowers,which one of the following would be an example of moral hazard?

Which is NOT an example of moral hazard

An example of moral hazard is

An example of moral hazard is

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