Question 1

A physical examination is not a good screening device for life insurance companies if

Accepted Answer

A)  life-threatening diseases are usually undetected. 
B)  doctors cannot be easily bribed to write a good report. 
C)  medical history is a good predictor of life expectancy. 
D)  one's current state of health is a good predictor of life expectancy. 
A)  life-threatening diseases are usually undetected. 
B)  doctors cannot be easily bribed to write a good report. 
C)  medical history is a good predictor of life expectancy. 
D)  one's current state of health is a good predictor of life expectancy.

Question 2

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 3

Assume health insurance is provided universally by the government.This would

Accepted Answer

A)  force every taxpayer to bear the costs of adverse selection. 
B)  force every taxpayer to bear the costs of moral hazard. 
C)  force the government to deal with adverse selection problems. 
D)  force foreign governments to deal with moral hazard problems. 
A)  force every taxpayer to bear the costs of adverse selection. 
B)  force every taxpayer to bear the costs of moral hazard. 
C)  force the government to deal with adverse selection problems. 
D)  force foreign governments to deal with moral hazard problems.

Question 4

To reduce adverse selection

Accepted Answer

A)  firms can use screening. 
B)  both consumers and firms can use screening. 
C)  the government could eliminate all monopolies and oligopolies. 
D)  Both B and C. 
A)  firms can use screening. 
B)  both consumers and firms can use screening. 
C)  the government could eliminate all monopolies and oligopolies. 
D)  Both B and C.

Question 5

Opportunism may occur when

Accepted Answer

A)  both parties have limited information. 
B)  both parties have full information. 
C)  one party has information the other does not. 
D)  All of the above. 
A)  both parties have limited information. 
B)  both parties have full information. 
C)  one party has information the other does not. 
D)  All of the above.

Question 6

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 7

Suppose a plaintiff hires a lawyer to represent her in a court case.The lawyer will be paid by the hour.Under this contract

Accepted Answer

A)  efficiency is not achieved. 
B)  the client bears all of the risk. 
C)  the lawyer has an incentive to lie about his hours worked. 
D)  All of the above. 
A)  efficiency is not achieved. 
B)  the client bears all of the risk. 
C)  the lawyer has an incentive to lie about his hours worked. 
D)  All of the above.

Question 8

In the presence of asymmetric information,a fixed-fee 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 9

If some consumers think that two detergents have differing qualities,such as brand-name vs.private label detergents,wheres other consumers know that the detergents are identical,then the detergent producer can

Accepted Answer

A)  reduce its costs. 
B)  engage in a special type of price discrimination. 
C)  avoid moral hazard. 
D)  None of the above. 
A)  reduce its costs. 
B)  engage in a special type of price discrimination. 
C)  avoid moral hazard. 
D)  None 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

Adverse selection occurs when there is

Accepted Answer

A)  full information. 
B)  unobserved behavior. 
C)  an unobserved characteristic. 
D)  a worker who shirks because his boss does not watch him. 
A)  full information. 
B)  unobserved behavior. 
C)  an unobserved characteristic. 
D)  a worker who shirks because his boss does not watch him.

Question 12

The Department of Transportation certifies motorcycle helmets,and all helmets certified carry a "DOT" logo.This is an example of

Accepted Answer

A)  government overreach. 
B)  screening. 
C)  signalling using established standards. 
D)  licensing to restrict entry by helmet manufacturers. 
A)  government overreach. 
B)  screening. 
C)  signalling using established standards. 
D)  licensing to restrict entry by helmet manufacturers.

Question 13

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 14

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

Accepted Answer

A)  construction contractor 
B)  fast food worker 
C)  economics professor 
D)  book author 
A)  construction contractor 
B)  fast food worker 
C)  economics professor 
D)  book author

Question 15

Suppose a plaintiff hires a lawyer to represent her in a court case.The lawyer will be paid a fixed fee.Under this contract

Accepted Answer

A)  efficiency is achieved. 
B)  the client bears all of the risk. 
C)  the lawyer has an incentive to lie about his hours worked. 
D)  All of the above. 
A)  efficiency is achieved. 
B)  the client bears all of the risk. 
C)  the lawyer has an incentive to lie about his hours worked. 
D)  All of the above.

Question 16

Used car buyers will believe that a car is of good quality when the seller signals the car's high quality by offering a warranty when

Accepted Answer

A)  a warranty on a lemon is costly to the seller. 
B)  warranties are offered on all cars. 
C)  warranties are only offered on lemons. 
D)  a warranty on a good car is a false signal. 
A)  a warranty on a lemon is costly to the seller. 
B)  warranties are offered on all cars. 
C)  warranties are only offered on lemons. 
D)  a warranty on a good car is a false signal.

Question 17

If adverse selection exists in a market

Accepted Answer

A)  the government steps in and shuts it down. 
B)  the market is considered a "grey market." 
C)  consumers may not participate in the market at all. 
D)  total surplus is maximized. 
A)  the government steps in and shuts it down. 
B)  the market is considered a "grey market." 
C)  consumers may not participate in the market at all. 
D)  total surplus is maximized.

Question 18

Assume Health Insurance is provided universally by the government.This would

Accepted Answer

A)  eliminate the problems of adverse selection. 
B)  result in adverse selection. 
C)  eliminate the problems of moral hazard. 
D)  All of the above. 
A)  eliminate the problems of adverse selection. 
B)  result in adverse selection. 
C)  eliminate the problems of moral hazard. 
D)  All of the above.

Question 19

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 20

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

Accepted Answer

A)  deferred payments 
B)  efficiency wages 
C)  bonding 
D)  All of the above. 
A)  deferred payments 
B)  efficiency wages 
C)  bonding 
D)  All of the above.

A physical examination is not a good screening device for life insurance companies if

One method for solving the adverse selection problem is

Assume health insurance is provided universally by the government.This would

To reduce adverse selection

Opportunism may occur when

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

Suppose a plaintiff hires a lawyer to represent her in a court case.The lawyer will be paid by the hour.Under this contract

In the presence of asymmetric information,a fixed-fee contract

If some consumers think that two detergents have differing qualities,such as brand-name vs.private label detergents,wheres other consumers know that the detergents are identical,then the detergent producer can

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

Adverse selection occurs when there is

The Department of Transportation certifies motorcycle helmets,and all helmets certified carry a "DOT" logo.This is an example of

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

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

Suppose a plaintiff hires a lawyer to represent her in a court case.The lawyer will be paid a fixed fee.Under this contract

Used car buyers will believe that a car is of good quality when the seller signals the car's high quality by offering a warranty when

If adverse selection exists in a market

Assume Health Insurance is provided universally by the government.This would

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

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

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 physical examination is not a good screening device for life insurance companies if

One method for solving the adverse selection problem is

Assume health insurance is provided universally by the government.This would

To reduce adverse selection

Opportunism may occur when

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

Suppose a plaintiff hires a lawyer to represent her in a court case.The lawyer will be paid by the hour.Under this contract

In the presence of asymmetric information,a fixed-fee contract

If some consumers think that two detergents have differing qualities,such as brand-name vs.private label detergents,wheres other consumers know that the detergents are identical,then the detergent producer can

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

Adverse selection occurs when there is

The Department of Transportation certifies motorcycle helmets,and all helmets certified carry a "DOT" logo.This is an example of

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

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

Suppose a plaintiff hires a lawyer to represent her in a court case.The lawyer will be paid a fixed fee.Under this contract

Used car buyers will believe that a car is of good quality when the seller signals the car's high quality by offering a warranty when

If adverse selection exists in a market

Assume Health Insurance is provided universally by the government.This would

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

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

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