Question 1

An example of moral hazard is

Accepted Answer

A) workers working diligently even though the boss is not looking 
B) health care insured 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 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 2

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

Question 3

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 not 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 more at all-you-can-eat buffets 
B) loggers select the most profitable trees to harvest even when they are not 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 4

To keep employees from shirking,you can invest in greater monitoring

Accepted Answer

A) because monitoring is inexpensive 
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) because monitoring is inexpensive 
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 5

A difference between moral hazard and adverse selection is that

Accepted Answer

A) moral hazard deals with pre-contractually determined public information 
B) moral hazard deals with post-contractually determined private information 
C) adverse selection deals with pre-contractually determined private information 
D) adverse selection deals with post-contractually determined public information 
A) moral hazard deals with pre-contractually determined public information 
B) moral hazard deals with post-contractually determined private information 
C) adverse selection deals with pre-contractually determined private information 
D) adverse selection deals with post-contractually determined public information

Question 6

An example of moral hazard is

Accepted Answer

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

Question 7

Which is NOT an example of signaling high quality in a social setting

Accepted Answer

A) wearing a business suit on a job interview 
B) leaving a big tip for the waiter after a dinner date 
C) offering an expensive engagement ring to your bride 
D) Doing messy chores before a big date 
A) wearing a business suit on a job interview 
B) leaving a big tip for the waiter after a dinner date 
C) offering an expensive engagement ring to your bride 
D) Doing messy chores before a big date

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) a and 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) a and b.

Question 9

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) termination for failing to show up to work during the probationary period 
C) GPS tracking devices in repair trucks 
D) listening in on call center conversations 
A) blocking social network sites on company computers 
B) termination for failing to show up to work during the probationary period 
C) GPS tracking devices in repair trucks 
D) listening in on call center conversations

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 as safely with more airbags as without 
C) football players 'spear' with their heads when tackling more often with safer helmets 
D) people read the medicine warnings as carefully when self-medicating versus 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 'spear' with their heads when tackling more often with safer helmets 
D) people read the medicine warnings as carefully when self-medicating versus with a doctor's prescription

Question 11

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 12

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 avoid 'spearing' with their heads even with safer helmets 
D) people fail to read the medicine warnings more often when self-medicating versus 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 avoid 'spearing' with their heads even with safer helmets 
D) people fail to read the medicine warnings more often when self-medicating versus with a doctor's prescription

Question 13

To keep employees from shirking,you can invest in greater monitoring

Accepted Answer

A) even though monitoring is expensive 
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) even though monitoring is expensive 
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 14

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 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 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 15

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'

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

Which is NOT an example of moral hazard

To keep employees from shirking,you can invest in greater monitoring

A difference between moral hazard and adverse selection is that

An example of moral hazard is

Which is NOT an example of signaling high quality in a social setting

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

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

An example of moral hazard is

An example of moral hazard is

An example of moral hazard is

To keep employees from shirking,you can invest in greater monitoring

Which is NOT an example of moral hazard

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

The One Lessor of Business

Benefits, Costs, and Decisions

Extent How Muchdecisions

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 Indirect 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 20: The Problem of Moral Hazard

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

Which is NOT an example of moral hazard

To keep employees from shirking,you can invest in greater monitoring

A difference between moral hazard and adverse selection is that

An example of moral hazard is

Which is NOT an example of signaling high quality in a social setting

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

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

An example of moral hazard is

An example of moral hazard is

An example of moral hazard is

To keep employees from shirking,you can invest in greater monitoring

Which is NOT an example of moral hazard

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

The One Lessor of Business

Benefits, Costs, and Decisions

Extent How Muchdecisions

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 Indirect 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