Question 1

If consumers have limited information about price and search costs exist,then

Accepted Answer

A)  the result must be that all firms will charge the same price. 
B)  the monopoly price must result. 
C)  the full-information, competitive price is not an equilibrium. 
D)  the difference in prices between firms will be greater than the search cost. 
A)  the result must be that all firms will charge the same price. 
B)  the monopoly price must result. 
C)  the full-information, competitive price is not an equilibrium. 
D)  the difference in prices between firms will be greater than the search cost. C

Question 2

In a labor-market pooling equilibrium with high-skill and low-skill workers and where a costly educational degree is used as a signaling device,

Accepted Answer

A)  the high-skill workers' wage is larger than the low-skill workers' wage. 
B)  the low-skill workers' wage is zero. 
C)  the high- and low-skill workers receive the same wage. 
D)  the high-skill workers' wage is equal to the low-skill workers' wage plus the cost of obtaining a degree. 
A)  the high-skill workers' wage is larger than the low-skill workers' wage. 
B)  the low-skill workers' wage is zero. 
C)  the high- and low-skill workers receive the same wage. 
D)  the high-skill workers' wage is equal to the low-skill workers' wage plus the cost of obtaining a degree. C

Question 3

Screening and signaling in the labor market are inefficient

Accepted Answer

A)  unless college costs are relatively low. 
B)  unless they result in a better job match. 
C)  because the benefits are spread out over many firms. 
D)  because they raise the wage paid to all workers. 
A)  unless college costs are relatively low. 
B)  unless they result in a better job match. 
C)  because the benefits are spread out over many firms. 
D)  because they raise the wage paid to all workers. B

Question 4

What role does a company like J.D.Power (which provides product satisfaction reviews)serve?

Accepted Answer

A)  It provides a screening test. 
B)  It provides a signal of quality. 
C)  It reduces moral hazard. 
D)  It reduces costs of giving surveys. 
A)  It provides a screening test. 
B)  It provides a signal of quality. 
C)  It reduces moral hazard. 
D)  It reduces costs of giving surveys.

Question 5

If a bank offers mortgages that do not require the normal 20% down payment,the bank encourages

Accepted Answer

A)  people who know they might not pay off the mortgage. 
B)  people who can't afford the down payment but can pay off the mortgage. 
C)  people who know that they are going to pay off the mortgage. 
D)  people who know they can't pay off the mortgage but who can afford the down payment. 
A)  people who know they might not pay off the mortgage. 
B)  people who can't afford the down payment but can pay off the mortgage. 
C)  people who know that they are going to pay off the mortgage. 
D)  people who know they can't pay off the mortgage but who can afford the down payment.

Question 6

The Internet has made it possible to compare lots of prices without incurring a lot of cost.If Internet access is unequally distributed throughout the population one would expect

Accepted Answer

A)  consumers with internet access to pay a higher price. 
B)  consumers without internet access to pay a lower price. 
C)  price discrimination against consumers without internet access. 
D)  firms to charge the same price to all consumers. 
A)  consumers with internet access to pay a higher price. 
B)  consumers without internet access to pay a lower price. 
C)  price discrimination against consumers without internet access. 
D)  firms to charge the same price to all consumers.

Question 7

A job advertised in an industry publication rather than a local newspaper is an attempt to

Accepted Answer

A)  use access to the industry publication as a screening mechanism. 
B)  use access to the newspaper as a screening mechanism. 
C)  use access to the industry publication as a means of statistical discrimination. 
D)  use access to the newspaper as a means of statistical discrimination. 
A)  use access to the industry publication as a screening mechanism. 
B)  use access to the newspaper as a screening mechanism. 
C)  use access to the industry publication as a means of statistical discrimination. 
D)  use access to the newspaper as a means of statistical discrimination.

Question 8

Investment in safety at the firm level poses a prisoners' dilemma because

Accepted Answer

A)  if each firm plays its dominant strategy, joint profits are maximized. 
B)  if each firm plays its dominant strategy, joint profits are not maximized. 
C)  neither firm has a dominant strategy. 
D)  the Nash equilibrium is not achieved. 
A)  if each firm plays its dominant strategy, joint profits are maximized. 
B)  if each firm plays its dominant strategy, joint profits are not maximized. 
C)  neither firm has a dominant strategy. 
D)  the Nash equilibrium is not achieved.

Question 9

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 10

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.

Question 11

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 12

-The market for used cars is shown in the above figure.Ten percent (10%)of all cars are lemons.A mechanic is offering to inspect a car for sale and certify that a car is not a lemon.If car sellers are risk neutral,what is the highest price that a car seller would pay for such a service? Who would buy this service?

Accepted Answer

Lemon owners would not buy this service

Question 13

A consumer is likely to avoid adverse selection and get a high-quality lunch at

Accepted Answer

A)  a snack bar at a traveling carnival. 
B)  a vendor who parks her cart at a different location every noon. 
C)  a restaurant in the center of a business district. 
D)  a restaurant located next door to Disneyland. 
A)  a snack bar at a traveling carnival. 
B)  a vendor who parks her cart at a different location every noon. 
C)  a restaurant in the center of a business district. 
D)  a restaurant located next door to Disneyland.

Question 14

Many people tend to buy multiple cars from the same manufacturer because

Accepted Answer

A)  doing so reduces the asymmetric information problem; consumers have better knowledge of quality. 
B)  doing so reduces the asymmetric information problem; consumers have better knowledge of prices. 
C)  doing so doesn't change the asymmetric information problem but consumers have more information. 
D)  doing so increases the consumers brand loyalty. 
A)  doing so reduces the asymmetric information problem; consumers have better knowledge of quality. 
B)  doing so reduces the asymmetric information problem; consumers have better knowledge of prices. 
C)  doing so doesn't change the asymmetric information problem but consumers have more information. 
D)  doing so increases the consumers brand loyalty.

Question 15

The wage of a known high-quality worker,wh,is $10,000.The wage for a known low-quality worker,wl,is $4,000.The share of the work force that is of high quality,s,is 0.5.For what value of the cost,c,of a college education that serves only as a signal of a high-quality worker does a pooling equilibrium exist?

Accepted Answer

A) c > $3,000 B) c < $3,000 C) c < $1,000 D) c = $2,500 A) c > $3,000 B) c < $3,000 C) c < $1,000 D) c = $2,500

Question 16

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 17

Some software firms require that applicants have passed certain standardized certification tests before being hired.This policy is necessary when

Accepted Answer

A)  cheap talk does not provide a credible signal. 
B)  cheap talk does provide a credible signal. 
C)  the interests of the firm and the applicant converge. 
D)  the applicant is honest about her abilities. 
A)  cheap talk does not provide a credible signal. 
B)  cheap talk does provide a credible signal. 
C)  the interests of the firm and the applicant converge. 
D)  the applicant is honest about her abilities.

Question 18

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.Forty percent (40%)of all cars are lemons.Which of the following statements is true?

Accepted Answer

A)  All of the cars will be sold. 
B)  No cars will be sold. 
C)  Only lemons will be sold. 
D)  Ten percent of the used cars sold will be lemons. 
A)  All of the cars will be sold. 
B)  No cars will be sold. 
C)  Only lemons will be sold. 
D)  Ten percent of the used cars sold will be lemons.

Question 19

If one job applicant truthfully reveals that they subscribe to an industry publication,the job applicant is

Accepted Answer

A)  using the trade publication as a screening tool. 
B)  using the trade publication as a signaling tool. 
C)  using the trade publication as a form of statistical discrimination. 
D)  using the trade publication for the wrong reasons. 
A)  using the trade publication as a screening tool. 
B)  using the trade publication as a signaling tool. 
C)  using the trade publication as a form of statistical discrimination. 
D)  using the trade publication for the wrong reasons.

Question 20

-The above figure shows the payoff to two firms in an industry deciding to make an investment in worker safety.Neither firm will make the investment because

Accepted Answer

A)  each can benefit from the other firm incurring the costs. 
B)  there is no benefit to making the investment. 
C)  each firm pays for the other firm's investment. 
D)  society does not care about worker safety. 
A)  each can benefit from the other firm incurring the costs. 
B)  there is no benefit to making the investment. 
C)  each firm pays for the other firm's investment. 
D)  society does not care about worker safety.

If consumers have limited information about price and search costs exist,then

In a labor-market pooling equilibrium with high-skill and low-skill workers and where a costly educational degree is used as a signaling device,

Screening and signaling in the labor market are inefficient

What role does a company like J.D.Power (which provides product satisfaction reviews)serve?

If a bank offers mortgages that do not require the normal 20% down payment,the bank encourages

The Internet has made it possible to compare lots of prices without incurring a lot of cost.If Internet access is unequally distributed throughout the population one would expect

A job advertised in an industry publication rather than a local newspaper is an attempt to

Investment in safety at the firm level poses a prisoners' dilemma because

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

The requirement that all drivers must carry auto insurance reduces

Asymmetric information will always cause

A consumer is likely to avoid adverse selection and get a high-quality lunch at

Many people tend to buy multiple cars from the same manufacturer because

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

Some software firms require that applicants have passed certain standardized certification tests before being hired.This policy is necessary when

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.Forty percent (40%)of all cars are lemons.Which of the following statements is true?

If one job applicant truthfully reveals that they subscribe to an industry publication,the job applicant is

-The above figure shows the payoff to two firms in an industry deciding to make an investment in worker safety.Neither firm will make the investment because

Introduction

Supply and Demand

Applying the Supply and Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Contracts and Moral Hazards

Filters

Exam 19: Asymmetric Information

If consumers have limited information about price and search costs exist,then

In a labor-market pooling equilibrium with high-skill and low-skill workers and where a costly educational degree is used as a signaling device,

Screening and signaling in the labor market are inefficient

What role does a company like J.D.Power (which provides product satisfaction reviews)serve?

If a bank offers mortgages that do not require the normal 20% down payment,the bank encourages

The Internet has made it possible to compare lots of prices without incurring a lot of cost.If Internet access is unequally distributed throughout the population one would expect

A job advertised in an industry publication rather than a local newspaper is an attempt to

Investment in safety at the firm level poses a prisoners' dilemma because

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

The requirement that all drivers must carry auto insurance reduces

Asymmetric information will always cause

A consumer is likely to avoid adverse selection and get a high-quality lunch at

Many people tend to buy multiple cars from the same manufacturer because

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

Some software firms require that applicants have passed certain standardized certification tests before being hired.This policy is necessary when

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.Forty percent (40%)of all cars are lemons.Which of the following statements is true?

If one job applicant truthfully reveals that they subscribe to an industry publication,the job applicant is

-The above figure shows the payoff to two firms in an industry deciding to make an investment in worker safety.Neither firm will make the investment because

Introduction

Supply and Demand

Applying the Supply and Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Contracts and Moral Hazards

Filters