Question 1

If a student achieves a high SAT score,this

Accepted Answer

A)  sends a signal to a college that the applicant will be a good college student. 
B)  does not act as a screening device. 
C)  is a moral hazard. 
D)  provides a college with no information. 
A)  sends a signal to a college that the applicant will be a good college student. 
B)  does not act as a screening device. 
C)  is a moral hazard. 
D)  provides a college with no information.

Question 2

Life insurance companies often give applicants a physical examination to prevent

Accepted Answer

A)  the person from dying before obtaining the policy. 
B)  signaling. 
C)  adverse selection. 
D)  profit maximization. 
A)  the person from dying before obtaining the policy. 
B)  signaling. 
C)  adverse selection. 
D)  profit maximization.

Question 3

When a person has health insurance,they often have to pay nothing or very little (called a "copay")to see a doctor.This might result in

Accepted Answer

A)  their being overly healthy. 
B)  a principal-agent problem. 
C)  some moral hazard, since they might overuse the benefit. 
D)  an adverse selection problem. 
A)  their being overly healthy. 
B)  a principal-agent problem. 
C)  some moral hazard, since they might overuse the benefit. 
D)  an adverse selection problem.

Question 4

Monitoring is often used by firms in an attempt to decrease

Accepted Answer

A)  shirking. 
B)  piece rates. 
C)  adverse selection. 
D)  signaling. 
A)  shirking. 
B)  piece rates. 
C)  adverse selection. 
D)  signaling.

Question 5

Suppose employees pay a bond of $1,000 to an employer.The gain from shirking is $400.Monitoring devices have been installed so that there is a 50% chance of being caught if you are shirking.The company is considering the installation of additional monitoring devices to increase the chance of catching a shirker to 100%.They feel this is needed to deter all shirking.What is your recommendation to the company? Explain.

Accepted Answer

Shirking is already deterred;

Question 6

If a life insurance company does not require a medical exam of its policyholders,it is most likely that the company

Accepted Answer

A)  charges above-average premiums. 
B)  charges below-average premiums. 
C)  charges no premiums. 
D)  has only very healthy policyholders. 
A)  charges above-average premiums. 
B)  charges below-average premiums. 
C)  charges no premiums. 
D)  has only very healthy policyholders.

Question 7

When shirking at the workplace occurs,increased monitoring of workers is the only effective way to reduce this behavior.

Accepted Answer

A) True 
 B)False

Question 8

If an agent is risk neutral and a principal is risk averse,which of the following contracts would be efficient in risk bearing?

Accepted Answer

A)  A fixed fee is paid to the agent. 
B)  A fixed fee is paid to the principal. 
C)  An hourly rate is paid to the agent. 
D)  The agent enjoys a share of the profit. 
A)  A fixed fee is paid to the agent. 
B)  A fixed fee is paid to the principal. 
C)  An hourly rate is paid to the agent. 
D)  The agent enjoys a share of the profit.

Question 9

In a contingent contract

Accepted Answer

A)  the risk neutral party bears the risk. 
B)  monitoring is not possible. 
C)  the principal will be at a disadvantage. 
D)  the payoffs are dependent upon another variable, such as revenue or profit. 
A)  the risk neutral party bears the risk. 
B)  monitoring is not possible. 
C)  the principal will be at a disadvantage. 
D)  the payoffs are dependent upon another variable, such as revenue or profit.

Question 10

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 11

In the presence of asymmetric information,a contingent contract

Accepted Answer

A)  achieves production efficiency. 
B)  can lead to opportunistic behavior on the part of the agent. 
C)  is impossible to write. 
D)  will result in the principal earning all of the profit. 
A)  achieves production efficiency. 
B)  can lead to opportunistic behavior on the part of the agent. 
C)  is impossible to write. 
D)  will result in the principal earning all of the profit.

Question 12

Which of the following would NOT be used by firms to deter shirking?

Accepted Answer

A)  requiring employees to post a bond 
B)  offering a bonus after five years of service 
C)  paying more than the market wage 
D)  paying less than the market wage 
A)  requiring employees to post a bond 
B)  offering a bonus after five years of service 
C)  paying more than the market wage 
D)  paying less than the market wage

Question 13

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 14

Explain how product liability laws can reduce adverse selection.

Accepted Answer

Product liability laws force p

Question 15

A person who practices poisonous snake charming and does not reveal this to her health insurance company before purchasing insurance is an example of

Accepted Answer

A)  moral hazard. 
B)  adverse selection. 
C)  signaling. 
D)  screening. 
A)  moral hazard. 
B)  adverse selection. 
C)  signaling. 
D)  screening.

Question 16

The ability of employees to ________ might reduce the possibility or effectiveness of monitoring.

Accepted Answer

A)  use the Internet 
B)  complain to management 
C)  telecommute 
D)  change jobs 
A)  use the Internet 
B)  complain to management 
C)  telecommute 
D)  change jobs

Question 17

Suppose a plaintiff hires a lawyer to represent her in a court case.The lawyer will receive a share of the settlement if the plaintiff wins.Under this contract

Accepted Answer

A)  efficiency cannot be achieved. 
B)  the client bears all of the risk. 
C)  the lawyer bears all of the risk. 
D)  the risk is shared. 
A)  efficiency cannot be achieved. 
B)  the client bears all of the risk. 
C)  the lawyer bears all of the risk. 
D)  the risk is shared.

Question 18

Adverse selection occurs when

Accepted Answer

A)  a person takes more risks that are not known to the life insurance company because he has life insurance. 
B)  a person buys life insurance because he has a risky lifestyle that is not known to the life insurance company. 
C)  a person is a risk lover. 
D)  pregnant women with health insurance make more doctor visits than uninsured pregnant women. 
A)  a person takes more risks that are not known to the life insurance company because he has life insurance. 
B)  a person buys life insurance because he has a risky lifestyle that is not known to the life insurance company. 
C)  a person is a risk lover. 
D)  pregnant women with health insurance make more doctor visits than uninsured pregnant women.

Question 19

What is one of the most important benefits of the Internet?

Accepted Answer

A)  The Internet has increased asymmetric information. 
B)  The Internet has reduced asymmetric information. 
C)  The Internet has increased moral hazard. 
D)  The Internet has increased transaction costs. 
A)  The Internet has increased asymmetric information. 
B)  The Internet has reduced asymmetric information. 
C)  The Internet has increased moral hazard. 
D)  The Internet has increased transaction costs.

Question 20

The requirement that all drivers must carry auto insurance reduces

Accepted Answer

A)  moral hazard. 
B)  the effectiveness of signaling. 
C)  adverse selection. 
D)  the chance of auto accidents. 
A)  moral hazard. 
B)  the effectiveness of signaling. 
C)  adverse selection. 
D)  the chance of auto accidents.

If a student achieves a high SAT score,this

Life insurance companies often give applicants a physical examination to prevent

When a person has health insurance,they often have to pay nothing or very little (called a "copay")to see a doctor.This might result in

Monitoring is often used by firms in an attempt to decrease

If a life insurance company does not require a medical exam of its policyholders,it is most likely that the company

When shirking at the workplace occurs,increased monitoring of workers is the only effective way to reduce this behavior.

If an agent is risk neutral and a principal is risk averse,which of the following contracts would be efficient in risk bearing?

In a contingent contract

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

In the presence of asymmetric information,a contingent contract

Which of the following would NOT be used by firms to deter shirking?

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

Explain how product liability laws can reduce adverse selection.

A person who practices poisonous snake charming and does not reveal this to her health insurance company before purchasing insurance is an example of

The ability of employees to ________ might reduce the possibility or effectiveness of monitoring.

Suppose a plaintiff hires a lawyer to represent her in a court case.The lawyer will receive a share of the settlement if the plaintiff wins.Under this contract

Adverse selection occurs when

What is one of the most important benefits of the Internet?

The requirement that all drivers must carry auto insurance reduces

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

If a student achieves a high SAT score,this

Life insurance companies often give applicants a physical examination to prevent

When a person has health insurance,they often have to pay nothing or very little (called a "copay")to see a doctor.This might result in

Monitoring is often used by firms in an attempt to decrease

If a life insurance company does not require a medical exam of its policyholders,it is most likely that the company

When shirking at the workplace occurs,increased monitoring of workers is the only effective way to reduce this behavior.

If an agent is risk neutral and a principal is risk averse,which of the following contracts would be efficient in risk bearing?

In a contingent contract

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

In the presence of asymmetric information,a contingent contract

Which of the following would NOT be used by firms to deter shirking?

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

Explain how product liability laws can reduce adverse selection.

A person who practices poisonous snake charming and does not reveal this to her health insurance company before purchasing insurance is an example of

The ability of employees to ________ might reduce the possibility or effectiveness of monitoring.

Suppose a plaintiff hires a lawyer to represent her in a court case.The lawyer will receive a share of the settlement if the plaintiff wins.Under this contract

Adverse selection occurs when

What is one of the most important benefits of the Internet?

The requirement that all drivers must carry auto insurance reduces

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