Question 1

Moral hazard is due to

Accepted Answer

A) hidden characteristics. 
B) hidden actions. 
C) symmetric information. 
D) adverse selection. 
A) hidden characteristics. 
B) hidden actions. 
C) symmetric information. 
D) adverse selection.

Question 2

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 3

The quality of a product

Accepted Answer

A) is usually unknown to the seller and the buyer. 
B) leads to adverse selection. 
C) creates noise in a market. 
D) is a hidden characteristic. 
A) is usually unknown to the seller and the buyer. 
B) leads to adverse selection. 
C) creates noise in a market. 
D) is a hidden characteristic.

Question 4

Under which one of the following contracts does an agent have the least incentive to behave opportunistically?

Accepted Answer

A) The agent pays a fixed fee to the principal for the right to all future payoffs. 
B) The agent works for the principal on an hourly basis. 
C) The agent receives a share of the profit. 
D) The agent works for the principal on a per unit basis. 
A) The agent pays a fixed fee to the principal for the right to all future payoffs. 
B) The agent works for the principal on an hourly basis. 
C) The agent receives a share of the profit. 
D) The agent works for the principal on a per unit basis.

Question 5

Shirking is most likely to occur when

Accepted Answer

A) the principal monitors the agents extensively. 
B) employees are paid an hourly wage. 
C) a piece rate contract is used. 
D) an assembly line is used for production. 
A) the principal monitors the agents extensively. 
B) employees are paid an hourly wage. 
C) a piece rate contract is used. 
D) an assembly line is used for production.

Question 6

Adverse selection is due to

Accepted Answer

A) hidden characteristics. 
B) hidden actions. 
C) symmetric information. 
D) moral hazard. 
A) hidden characteristics. 
B) hidden actions. 
C) symmetric information. 
D) moral hazard.

Question 7

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

Accepted Answer

A) car salesman 
B) fireman 
C) armored car guard 
D) basketball coach 
A) car salesman 
B) fireman 
C) armored car guard 
D) basketball coach

Question 8

If the government provides universal health insurance, what screening process will the government need?

Accepted Answer

A) It won't need a screening test. 
B) It will only give health insurance to non-smokers. 
C) It won't use screening tests but it will use statistical discrimination. 
D) It won't use screening tests but it will use signals. 
A) It won't need a screening test. 
B) It will only give health insurance to non-smokers. 
C) It won't use screening tests but it will use statistical discrimination. 
D) It won't use screening tests but it will use signals.

Question 9

One method for solving the adverse selection problem is

Accepted Answer

A) to restrict the ability of the party with information from taking advantage of hidden information. 
B) by having the government run all firms. 
C) to close down firms with bad reputations. 
D) All of the above. 
A) to restrict the ability of the party with information from taking advantage of hidden information. 
B) by having the government run all firms. 
C) to close down firms with bad reputations. 
D) All of the above.

Question 10

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 11

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 12

Signals can help prevent adverse selection as long as a false signal is costly to the person sending it.

Accepted Answer

A) True 
 B)False

Question 13

If an additional dollar spent on monitoring would reduce shirking by 10 minutes, then the firm will increase the worker's wage by $1 if this caused

Accepted Answer

A) shirking to increase by less than 10 minutes. 
B) shirking to decrease by more than 10 minutes. 
C) shirking to decrease by less than 10 minutes. 
D) monitoring to become unnecessary. 
A) shirking to increase by less than 10 minutes. 
B) shirking to decrease by more than 10 minutes. 
C) shirking to decrease by less than 10 minutes. 
D) monitoring to become unnecessary.

Question 14

Which of the following acts as a hostage for employees to behave well?

Accepted Answer

A) on-site childcare where employees take their children while working 
B) performance bonuses 
C) training 
D) bonding 
A) on-site childcare where employees take their children while working 
B) performance bonuses 
C) training 
D) bonding

Question 15

In the market for used cars, if buyers and sellers have perfect information about the quality of cars, then

Accepted Answer

A) all cars will sell for the same price and there is no asymmetric information problem. 
B) all cars will sell for the same price and there is an asymmetric information problem. 
C) cars sell for their true value and there is no asymmetric information problem. 
D) all cars will sell for the same price and there is a moral hazard problem. 
A) all cars will sell for the same price and there is no asymmetric information problem. 
B) all cars will sell for the same price and there is an asymmetric information problem. 
C) cars sell for their true value and there is no asymmetric information problem. 
D) all cars will sell for the same price and there is a moral hazard problem.

Question 16

Explain why some people who are applying for a job at a bank dress up, arrive early, and have their paperwork neatly completed for the job interview.

Accepted Answer

They are trying to eliminate a

Question 17

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

Accepted Answer

A) The agent pays the principal a higher licensing fee when demand is high compared to when demand is low. 
B) The agent makes the same wage regardless of demand. 
C) The agent, who lives in Nevada, earns more money on out-of-state sales (e.g., sales to California or New York)than in-state sales. 
D) The restaurant owner (principal)pays the waiter (agent)more when it is snowing or raining outside. 
A) The agent pays the principal a higher licensing fee when demand is high compared to when demand is low. 
B) The agent makes the same wage regardless of demand. 
C) The agent, who lives in Nevada, earns more money on out-of-state sales (e.g., sales to California or New York)than in-state sales. 
D) The restaurant owner (principal)pays the waiter (agent)more when it is snowing or raining outside.

Question 18

A firm that can sell essentially the same product with the same quality under different brand names that have different perceived quality, the firm

Accepted Answer

A) has a moral hazard problem. 
B) creates noise in the market. 
C) creates an arbitrage opportunity. 
D) is engaging in unfair trading practices. 
A) has a moral hazard problem. 
B) creates noise in the market. 
C) creates an arbitrage opportunity. 
D) is engaging in unfair trading practices.

Question 19

A profit-maximizing firm that uses an efficiency wage and monitors will increase the wage it pays its workers until

Accepted Answer

A) the worker requires no monitoring. 
B) the worker receives the market wage and requires full-time monitoring. 
C) the cost of monitoring the worker equals the efficiency wage. 
D) the change in the workers' productivity from being monitored times the per time unit cost of monitoring equals one. 
A) the worker requires no monitoring. 
B) the worker receives the market wage and requires full-time monitoring. 
C) the cost of monitoring the worker equals the efficiency wage. 
D) the change in the workers' productivity from being monitored times the per time unit cost of monitoring equals one.

Question 20

In the automobile insurance market, adverse selection occurs when

Accepted Answer

A) drivers with greater risks buy a policy with large deductibles. 
B) drivers with greater risks buy a policy with no deductibles. 
C) uninsured drivers drive recklessly. 
D) insured drivers drive recklessly. 
A) drivers with greater risks buy a policy with large deductibles. 
B) drivers with greater risks buy a policy with no deductibles. 
C) uninsured drivers drive recklessly. 
D) insured drivers drive recklessly.

Moral hazard is due to

If all firms pay an efficiency wage, then

The quality of a product

Under which one of the following contracts does an agent have the least incentive to behave opportunistically?

Shirking is most likely to occur when

Adverse selection is due to

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

If the government provides universal health insurance, what screening process will the government need?

One method for solving the adverse selection problem is

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

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

Signals can help prevent adverse selection as long as a false signal is costly to the person sending it.

If an additional dollar spent on monitoring would reduce shirking by 10 minutes, then the firm will increase the worker's wage by $1 if this caused

Which of the following acts as a hostage for employees to behave well?

In the market for used cars, if buyers and sellers have perfect information about the quality of cars, then

Explain why some people who are applying for a job at a bank dress up, arrive early, and have their paperwork neatly completed for the job interview.

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

A firm that can sell essentially the same product with the same quality under different brand names that have different perceived quality, the firm

A profit-maximizing firm that uses an efficiency wage and monitors will increase the wage it pays its workers until

In the automobile insurance market, adverse selection occurs when

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

Moral hazard is due to

If all firms pay an efficiency wage, then

The quality of a product

Under which one of the following contracts does an agent have the least incentive to behave opportunistically?

Shirking is most likely to occur when

Adverse selection is due to

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

If the government provides universal health insurance, what screening process will the government need?

One method for solving the adverse selection problem is

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

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

Signals can help prevent adverse selection as long as a false signal is costly to the person sending it.

If an additional dollar spent on monitoring would reduce shirking by 10 minutes, then the firm will increase the worker's wage by $1 if this caused

Which of the following acts as a hostage for employees to behave well?

In the market for used cars, if buyers and sellers have perfect information about the quality of cars, then

Explain why some people who are applying for a job at a bank dress up, arrive early, and have their paperwork neatly completed for the job interview.

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

A firm that can sell essentially the same product with the same quality under different brand names that have different perceived quality, the firm

A profit-maximizing firm that uses an efficiency wage and monitors will increase the wage it pays its workers until

In the automobile insurance market, adverse selection occurs when

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