Question 1

Suppose a plaintiff hires a lawyer to represent her in a court case.To which of the following contracts would a highly risk-averse plaintiff agree?

Accepted Answer

A)  The lawyer is paid by the hour. 
B)  The lawyer receives a share of the settlement. 
C)  The lawyer receives a fixed fee. 
D)  The lawyer pays the client a fee for the right to the entire settlement. 
A)  The lawyer is paid by the hour. 
B)  The lawyer receives a share of the settlement. 
C)  The lawyer receives a fixed fee. 
D)  The lawyer pays the client a fee for the right to the entire settlement.

Question 2

Firms are able to price discriminate

Accepted Answer

A)  when all customers are uninformed about quality differences. 
B)  when no customers are uninformed about quality differences. 
C)  when some customers are uninformed about quality differences. 
D)  when there is full information about quality available to all customers. 
A)  when all customers are uninformed about quality differences. 
B)  when no customers are uninformed about quality differences. 
C)  when some customers are uninformed about quality differences. 
D)  when there is full information about quality available to all customers.

Question 3

Why would a firm prefer that a company like J.D.Power (which provides product satisfaction reviews)review its product rather than doing it within the firm?

Accepted Answer

A)  J.D. Power provides less credibility. 
B)  J.D. Power provides greater credibility. 
C)  J.D. Power is more honest than the average firm. 
D)  J.D. Power has a government monopoly in providing product satisfaction reviews. 
A)  J.D. Power provides less credibility. 
B)  J.D. Power provides greater credibility. 
C)  J.D. Power is more honest than the average firm. 
D)  J.D. Power has a government monopoly in providing product satisfaction reviews.

Question 4

If an additional dollar spent on monitoring would reduce shirking by 10 minutes,then the firm will increase the worker's wage by $1 if this caused

Accepted Answer

A)  shirking to increase by less than 10 minutes. 
B)  shirking to decrease by more than 10 minutes. 
C)  shirking to decrease by less than 10 minutes. 
D)  monitoring to become unnecessary. 
A)  shirking to increase by less than 10 minutes. 
B)  shirking to decrease by more than 10 minutes. 
C)  shirking to decrease by less than 10 minutes. 
D)  monitoring to become unnecessary.

Question 5

Some companies subject their applicants to extensive tests.Why?

Accepted Answer

A)  to reduce the informational asymmetry between the firm and the applicant 
B)  to screen the applicant to avoid the problem of adverse selection 
C)  to gather more information about the applicant 
D)  All of the above. 
A)  to reduce the informational asymmetry between the firm and the applicant 
B)  to screen the applicant to avoid the problem of adverse selection 
C)  to gather more information about the applicant 
D)  All of the above.

Question 6

A college education can be a signal because

Accepted Answer

A)  a college education is expensive. 
B)  those who graduate college have successful parents, and are therefore also likely to be successful. 
C)  highly capable people are more likely to finish college than those with low capabilities. 
D)  college teaches useful skills and gives valuable training. 
A)  a college education is expensive. 
B)  those who graduate college have successful parents, and are therefore also likely to be successful. 
C)  highly capable people are more likely to finish college than those with low capabilities. 
D)  college teaches useful skills and gives valuable training.

Question 7

Monitoring of employees

Accepted Answer

A)  is only effective while the employees are working, so that payment may be withheld for shirking. 
B)  can be effective after-the-fact if the shirking behavior can be detected later and the employee punished. 
C)  is only effective after-the-fact when it is possible to fire them for shirking. 
D)  None of the above. 
A)  is only effective while the employees are working, so that payment may be withheld for shirking. 
B)  can be effective after-the-fact if the shirking behavior can be detected later and the employee punished. 
C)  is only effective after-the-fact when it is possible to fire them for shirking. 
D)  None of the above.

Question 8

What is one reason the eBay seller reputation system is important?

Accepted Answer

A)  eBay transactions tend to be isolated, one-off transactions. 
B)  eBay transactions tend to be repeat sales between the same seller and buyers. 
C)  eBay transactions often involve stolen products. 
D)  eBay transactions require a larger percentage than, say, Amazon transactions. 
A)  eBay transactions tend to be isolated, one-off transactions. 
B)  eBay transactions tend to be repeat sales between the same seller and buyers. 
C)  eBay transactions often involve stolen products. 
D)  eBay transactions require a larger percentage than, say, Amazon transactions.

Question 9

An uninformed party can use ________ to learn about the information held by the informed party.

Accepted Answer

A)  signaling 
B)  screening 
C)  a warranty 
D)  educational attainment 
A)  signaling 
B)  screening 
C)  a warranty 
D)  educational attainment

Question 10

The quality of a product

Accepted Answer

A)  is usually unknown to the seller and the buyer. 
B)  leads to adverse selection. 
C)  creates noise in a market. 
D)  is a hidden characteristic. 
A)  is usually unknown to the seller and the buyer. 
B)  leads to adverse selection. 
C)  creates noise in a market. 
D)  is a hidden characteristic.

Question 11

Asymmetric information is where

Accepted Answer

A)  everyone has the same information. 
B)  one person in a transaction has more information than the other. 
C)  people engaging in a transaction are uncertain about future events. 
D)  the information available to the people in a transaction is misleading or incomplete. 
A)  everyone has the same information. 
B)  one person in a transaction has more information than the other. 
C)  people engaging in a transaction are uncertain about future events. 
D)  the information available to the people in a transaction is misleading or incomplete.

Suppose a plaintiff hires a lawyer to represent her in a court case.To which of the following contracts would a highly risk-averse plaintiff agree?

Firms are able to price discriminate

Why would a firm prefer that a company like J.D.Power (which provides product satisfaction reviews)review its product rather than doing it within the firm?

If an additional dollar spent on monitoring would reduce shirking by 10 minutes,then the firm will increase the worker's wage by $1 if this caused

Some companies subject their applicants to extensive tests.Why?

A college education can be a signal because

Monitoring of employees

What is one reason the eBay seller reputation system is important?

An uninformed party can use ________ to learn about the information held by the informed party.

The quality of a product

Asymmetric information is where

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

Suppose a plaintiff hires a lawyer to represent her in a court case.To which of the following contracts would a highly risk-averse plaintiff agree?

Firms are able to price discriminate

Why would a firm prefer that a company like J.D.Power (which provides product satisfaction reviews)review its product rather than doing it within the firm?

If an additional dollar spent on monitoring would reduce shirking by 10 minutes,then the firm will increase the worker's wage by $1 if this caused

Some companies subject their applicants to extensive tests.Why?

A college education can be a signal because

Monitoring of employees

What is one reason the eBay seller reputation system is important?

An uninformed party can use ________ to learn about the information held by the informed party.

The quality of a product

Asymmetric information is where

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