Question 1

A person who starts practicing poisonous snake charming after signing a contract with a health insurance company 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 2

If all used cars in a market with symmetric information about quality are sold at the same price,then

Accepted Answer

A)  sellers of good quality cars are subsidizing sellers of lemons. 
B)  buyers of good quality cars are subsidizing buyers of lemons. 
C)  sellers of lemons are subsidizing sellers of good quality cars. 
D)  sellers of good quality cars are subsidizing buyers of lemons. 
A)  sellers of good quality cars are subsidizing sellers of lemons. 
B)  buyers of good quality cars are subsidizing buyers of lemons. 
C)  sellers of lemons are subsidizing sellers of good quality cars. 
D)  sellers of good quality cars are subsidizing buyers of lemons.

Question 3

In a principal-agent relationship,moral hazard might occur if

Accepted Answer

A)  the agent can hide his actions from the principal. 
B)  the principal and agent are married. 
C)  payoffs are based on a state of nature. 
D)  the principal can hide her actions from the agent. 
A)  the agent can hide his actions from the principal. 
B)  the principal and agent are married. 
C)  payoffs are based on a state of nature. 
D)  the principal can hide her actions from the agent.

Question 4

As the probability of detecting shirking increases,the size of the bond necessary to deter shirking

Accepted Answer

A)  also increases. 
B)  stays the same. 
C)  decreases. 
D)  increases at an exponential rate. 
A)  also increases. 
B)  stays the same. 
C)  decreases. 
D)  increases at an exponential rate.

Question 5

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 6

Adverse selection can occur when

Accepted Answer

A)  all persons involved in a transaction have full information. 
B)  one person has information not available to others. 
C)  post-agreement incentives result in workers shirking. 
D)  nobody has any information about a particular product. 
A)  all persons involved in a transaction have full information. 
B)  one person has information not available to others. 
C)  post-agreement incentives result in workers shirking. 
D)  nobody has any information about a particular product.

Question 7

Which of the following reduces the effects of asymmetric information?

Accepted Answer

A)  repeat purchases 
B)  warranties 
C)  building a reputation 
D)  All of the above. 
A)  repeat purchases 
B)  warranties 
C)  building a reputation 
D)  All of the above.

Question 8

Selling the same product under different brand names allows a firm to price discriminate as long as

Accepted Answer

A)  customers know the products are identical. 
B)  customers do not know the products are identical. 
C)  the products really are not the same. 
D)  the firm lets customers know that the products are identical. 
A)  customers know the products are identical. 
B)  customers do not know the products are identical. 
C)  the products really are not the same. 
D)  the firm lets customers know that the products are identical.

Question 9

If all consumers are uninformed about the quality of a product

Accepted Answer

A)  firms can increase profit by selling the same product under a different name at a different price. 
B)  firms will not be able to price discriminate. 
C)  firms will price discriminate. 
D)  firms will increase profits by charging different prices for the same product. 
A)  firms can increase profit by selling the same product under a different name at a different price. 
B)  firms will not be able to price discriminate. 
C)  firms will price discriminate. 
D)  firms will increase profits by charging different prices for the same product.

Question 10

If an agent is risk averse and a principal is risk neutral,if the agent pays the principal a fixed fee

Accepted Answer

A)  all risk is eliminated. 
B)  the risk neutral person bears all the risk while the risk averse person bears none. 
C)  the risk averse person bears all the risk while the risk neutral person bears none. 
D)  the principal and agent share risk equally. 
A)  all risk is eliminated. 
B)  the risk neutral person bears all the risk while the risk averse person bears none. 
C)  the risk averse person bears all the risk while the risk neutral person bears none. 
D)  the principal and agent share risk equally.

Question 11

Author A accepts a $5,000 advance and a 10% royalty after 5,000 books are sold.Author B foregoes the advance and negotiates for a 15% royalty on all books sold.Author C decides to self publish his book and keep 50% of all sales revenue.In what order of risk aversion (from most to least)would you rank these authors?

Accepted Answer

A)  Author A, Author B, Author C 
B)  Author A, Author C, Author B 
C)  Author B, Author A, Author C 
D)  Author C, Author B, Author A 
A)  Author A, Author B, Author C 
B)  Author A, Author C, Author B 
C)  Author B, Author A, Author C 
D)  Author C, Author B, Author A

Question 12

If a principal and agent enter into a fixed-fee contract where the agent is paid a fixed wage

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 13

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 14

If a health insurer charges a rate equal to the average cost of health care for the entire population,then it is likely that

Accepted Answer

A)  everyone buys health insurance. 
B)  unhealthy people will not buy health insurance. 
C)  healthy people will not buy health insurance. 
D)  nobody will buy health insurance. 
A)  everyone buys health insurance. 
B)  unhealthy people will not buy health insurance. 
C)  healthy people will not buy health insurance. 
D)  nobody will buy health insurance.

Question 15

Restricting entry to a profession through licensing or certification requirements

Accepted Answer

A)  increases welfare. 
B)  decreases welfare. 
C)  may increase or decrease welfare. 
D)  leaves welfare unchanged. 
A)  increases welfare. 
B)  decreases welfare. 
C)  may increase or decrease welfare. 
D)  leaves welfare unchanged.

Question 16

One drawback of deferred payments is that

Accepted Answer

A)  employees may shirk anyway. 
B)  employers might fire high achievers to avoid paying higher wages or bonuses. 
C)  it is difficult to determine who are the good and who are the bad workers. 
D)  employees have to work for the firm for a long time. 
A)  employees may shirk anyway. 
B)  employers might fire high achievers to avoid paying higher wages or bonuses. 
C)  it is difficult to determine who are the good and who are the bad workers. 
D)  employees have to work for the firm for a long time.

Question 17

If a firm has established monitoring devices that have a 50% chance of detecting shirking,and an employee gains $5,000 from shirking,the employer can deter shirking by having employees post a bond equal to

Accepted Answer

A)  $2,500. 
B)  $5,000. 
C)  $10,000. 
D)  $50,000. 
A)  $2,500. 
B)  $5,000. 
C)  $10,000. 
D)  $50,000.

Question 18

Requiring that barbers have licenses,restricts entry and

Accepted Answer

A)  raises the average quality hair care. 
B)  increases the costs of getting a hair cut. 
C)  may increase or decrease welfare. 
D)  All of the above. 
A)  raises the average quality hair care. 
B)  increases the costs of getting a hair cut. 
C)  may increase or decrease welfare. 
D)  All of the above.

Question 19

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 20

Author A accepts a $5,000 advance and a 10% royalty after 5,000 books are sold.Author B foregoes the advance and negotiates for a 15% royalty on all books sold.Author C decides to self publish his book and keep 50% of all sales revenue.Which of these authors expects to sell the fewest books?

Accepted Answer

A)  Author A 
B)  Author C 
C)  Author B 
D)  They are all equally likely. 
A)  Author A 
B)  Author C 
C)  Author B 
D)  They are all equally likely.

A person who starts practicing poisonous snake charming after signing a contract with a health insurance company is an example of

If all used cars in a market with symmetric information about quality are sold at the same price,then

In a principal-agent relationship,moral hazard might occur if

As the probability of detecting shirking increases,the size of the bond necessary to deter shirking

Moral hazard is due to

Adverse selection can occur when

Which of the following reduces the effects of asymmetric information?

Selling the same product under different brand names allows a firm to price discriminate as long as

If all consumers are uninformed about the quality of a product

If an agent is risk averse and a principal is risk neutral,if the agent pays the principal a fixed fee

If a principal and agent enter into a fixed-fee contract where the agent is paid a fixed wage

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

If a health insurer charges a rate equal to the average cost of health care for the entire population,then it is likely that

Restricting entry to a profession through licensing or certification requirements

One drawback of deferred payments is that

If a firm has established monitoring devices that have a 50% chance of detecting shirking,and an employee gains $5,000 from shirking,the employer can deter shirking by having employees post a bond equal to

Requiring that barbers have licenses,restricts entry and

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.

Author A accepts a $5,000 advance and a 10% royalty after 5,000 books are sold.Author B foregoes the advance and negotiates for a 15% royalty on all books sold.Author C decides to self publish his book and keep 50% of all sales revenue.Which of these authors expects to sell the fewest books?

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

A person who starts practicing poisonous snake charming after signing a contract with a health insurance company is an example of

If all used cars in a market with symmetric information about quality are sold at the same price,then

In a principal-agent relationship,moral hazard might occur if

As the probability of detecting shirking increases,the size of the bond necessary to deter shirking

Moral hazard is due to

Adverse selection can occur when

Which of the following reduces the effects of asymmetric information?

Selling the same product under different brand names allows a firm to price discriminate as long as

If all consumers are uninformed about the quality of a product

If an agent is risk averse and a principal is risk neutral,if the agent pays the principal a fixed fee

If a principal and agent enter into a fixed-fee contract where the agent is paid a fixed wage

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

If a health insurer charges a rate equal to the average cost of health care for the entire population,then it is likely that

Restricting entry to a profession through licensing or certification requirements

One drawback of deferred payments is that

If a firm has established monitoring devices that have a 50% chance of detecting shirking,and an employee gains $5,000 from shirking,the employer can deter shirking by having employees post a bond equal to

Requiring that barbers have licenses,restricts entry and

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.

Author A accepts a $5,000 advance and a 10% royalty after 5,000 books are sold.Author B foregoes the advance and negotiates for a 15% royalty on all books sold.Author C decides to self publish his book and keep 50% of all sales revenue.Which of these authors expects to sell the fewest books?

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