Question 1

How can a warranty at the seller's expense signal that a product is of high quality?

Accepted Answer

If the product is of low quali

Question 2

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 3

Asymmetric information will always cause

Accepted Answer

A)  efficiency problems. 
B)  equity problems. 
C)  Both A and B. 
D)  None of the above. 
A)  efficiency problems. 
B)  equity problems. 
C)  Both A and B. 
D)  None of the above.

Question 4

Signals solve the adverse selection problem

Accepted Answer

A)  if the signal is an advertisement placed in the New York Times. 
B)  only if the signal is viewed as credible. 
C)  when the signal is expensive to produce. 
D)  if the signaling firm is known to be a profit-maximizer. 
A)  if the signal is an advertisement placed in the New York Times. 
B)  only if the signal is viewed as credible. 
C)  when the signal is expensive to produce. 
D)  if the signaling firm is known to be a profit-maximizer.

Question 5

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 6

An informed party can use ________ to give information to an uninformed or lesser-informed party.

Accepted Answer

A)  signaling 
B)  screening 
C)  an individual mandate 
D)  market noise 
A)  signaling 
B)  screening 
C)  an individual mandate 
D)  market noise

Question 7

If a professional sports athlete signs a new contract which defers compensation until years after she is retired,she is signaling

Accepted Answer

A)  that she does not plan to shirk in the future, regardless of whether she did so in the past. 
B)  that she did shirk and she will do so in the future. 
C)  that she did shirk but won't do so in the future. 
D)  that she didn't shirk and she won't do so in the future. 
A)  that she does not plan to shirk in the future, regardless of whether she did so in the past. 
B)  that she did shirk and she will do so in the future. 
C)  that she did shirk but won't do so in the future. 
D)  that she didn't shirk and she won't do so in the future.

Question 8

An efficiency wage premium serves the same function as a bond because,just as with a bond,the premium represents

Accepted Answer

A)  the amount the employee loses if caught shirking. 
B)  the expected value of the amount the employee loses if he shirks. 
C)  the cost of monitoring the employee. 
D)  the gain to the employee if he shirks. 
A)  the amount the employee loses if caught shirking. 
B)  the expected value of the amount the employee loses if he shirks. 
C)  the cost of monitoring the employee. 
D)  the gain to the employee if he shirks.

Question 9

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 10

In the market for used cars,if there is asymmetric information yet all cars sell for the same price

Accepted Answer

A)  there is an efficiency problem and there are equity implications. 
B)  there is no efficiency problem, but there are equity implications. 
C)  buyers of lemons win at the expense of buyers of good cars. 
D)  there is no efficiency problem and there are no equity implications. 
A)  there is an efficiency problem and there are equity implications. 
B)  there is no efficiency problem, but there are equity implications. 
C)  buyers of lemons win at the expense of buyers of good cars. 
D)  there is no efficiency problem and there are no equity implications.

Question 11

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.

Question 12

Firms that seek to avoid hiring lazy workers that assert they are hardworking are trying to avoid

Accepted Answer

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

Question 13

Firms use hostages

Accepted Answer

A)  to force employees to work. 
B)  to encourage good behavior. 
C)  to get employees to work for less money. 
D)  None of the above. 
A)  to force employees to work. 
B)  to encourage good behavior. 
C)  to get employees to work for less money. 
D)  None of the above.

Question 14

If adverse selection exists in a market

Accepted Answer

A)  it increases consumer surplus but reduces producer surplus. 
B)  it reduces consumer and producer surplus. 
C)  it reduces producer surplus but has no impact on consumer surplus. 
D)  it increases both consumer and producer surplus. 
A)  it increases consumer surplus but reduces producer surplus. 
B)  it reduces consumer and producer surplus. 
C)  it reduces producer surplus but has no impact on consumer surplus. 
D)  it increases both consumer and producer surplus.

Question 15

In the presence of asymmetric information,a piece-rate contract

Accepted Answer

A)  is not as good as a contract based on commissions. 
B)  can lead to agents producing more output than would occur under a fixed-rent-paid-to-the-principal contract. 
C)  is impossible to write. 
D)  will result in the principal earning all of the profit. 
A)  is not as good as a contract based on commissions. 
B)  can lead to agents producing more output than would occur under a fixed-rent-paid-to-the-principal contract. 
C)  is impossible to write. 
D)  will result in the principal earning all of the profit.

Question 16

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 17

What is one potential problem with nationalized health care?

Accepted Answer

A)  It might not reduce moral hazard. 
B)  It is guaranteed to solve the principal-agent problem. 
C)  It would be efficient in risk bearing. 
D)  It might cost too much. 
A)  It might not reduce moral hazard. 
B)  It is guaranteed to solve the principal-agent problem. 
C)  It would be efficient in risk bearing. 
D)  It might cost too much.

Question 18

Which of the following is a method for solving the problem of adverse selection?

Accepted Answer

A)  truth in advertising laws 
B)  product liability laws 
C)  food labeling requirements 
D)  All of the above. 
A)  truth in advertising laws 
B)  product liability laws 
C)  food labeling requirements 
D)  All of the above.

Question 19

Which firm provides the better signal when trying to decide which of the firms' stock to buy?

Accepted Answer

A)  Firm A, which uses an independent accounting firm for auditing. 
B)  Firm B, which uses an internal group for auditing. 
C)  Firm C, which has seen its stock go up by $20 per share in the last week. 
D)  Firm D, which hasn't been under SEC investigation for over 5 years. 
A)  Firm A, which uses an independent accounting firm for auditing. 
B)  Firm B, which uses an internal group for auditing. 
C)  Firm C, which has seen its stock go up by $20 per share in the last week. 
D)  Firm D, which hasn't been under SEC investigation for over 5 years.

Question 20

An efficiency wage is

Accepted Answer

A)  lower than a living wage. 
B)  unfair to employers. 
C)  a wage rate above the employees' opportunity cost. 
D)  unlikely to be paid when monitoring is available. 
A)  lower than a living wage. 
B)  unfair to employers. 
C)  a wage rate above the employees' opportunity cost. 
D)  unlikely to be paid when monitoring is available.

How can a warranty at the seller's expense signal that a product is of high quality?

Adverse selection is due to

Asymmetric information will always cause

Signals solve the adverse selection problem

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

An informed party can use ________ to give information to an uninformed or lesser-informed party.

If a professional sports athlete signs a new contract which defers compensation until years after she is retired,she is signaling

An efficiency wage premium serves the same function as a bond because,just as with a bond,the premium represents

Shirking is most likely to occur when

In the market for used cars,if there is asymmetric information yet all cars sell for the same price

In the automobile insurance market,adverse selection occurs when

Firms that seek to avoid hiring lazy workers that assert they are hardworking are trying to avoid

Firms use hostages

If adverse selection exists in a market

In the presence of asymmetric information,a piece-rate 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

What is one potential problem with nationalized health care?

Which of the following is a method for solving the problem of adverse selection?

Which firm provides the better signal when trying to decide which of the firms' stock to buy?

An efficiency wage is

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

How can a warranty at the seller's expense signal that a product is of high quality?

Adverse selection is due to

Asymmetric information will always cause

Signals solve the adverse selection problem

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

An informed party can use ________ to give information to an uninformed or lesser-informed party.

If a professional sports athlete signs a new contract which defers compensation until years after she is retired,she is signaling

An efficiency wage premium serves the same function as a bond because,just as with a bond,the premium represents

Shirking is most likely to occur when

In the market for used cars,if there is asymmetric information yet all cars sell for the same price

In the automobile insurance market,adverse selection occurs when

Firms that seek to avoid hiring lazy workers that assert they are hardworking are trying to avoid

Firms use hostages

If adverse selection exists in a market

In the presence of asymmetric information,a piece-rate 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

What is one potential problem with nationalized health care?

Which of the following is a method for solving the problem of adverse selection?

Which firm provides the better signal when trying to decide which of the firms' stock to buy?

An efficiency wage is

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