Exam 18: Asymmetric Information

If getting accepted into college is very difficult because of high standards of intelligence and ability,but students learn absolutely nothing while in college,it is most likely that

If you sell your DVD player on eBay,you will be better informed about the quality of the product than any potential buyer.This is called

In the tourist-trap model,a consumer might pay more than marginal cost for a good sold in a competitive market if the cost of possibly finding the good cheaper is more than the markup over marginal cost.

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

A pooling equilibrium occurs when

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

Competitive firms are able to set price above marginal cost when

-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?

Firms under-invest in safety because

Explain what may occur when a buyer and a seller have unequal amounts of limited information.Describe two different types of problems that may arise when asymmetric information exists.

-The above figure shows the payoff to two firms in an industry deciding to make an investment in worker safety.The dominant strategy for each firm

Two firms,A and B,are faced with a decision on making investments in safety.They each currently earn profit of $500 each.A safety investment would cost $100 paid by the firm that makes the investment and would lower both firms' labor costs by $75 per firm.Draw the payoff matrix for this game and determine the Nash equilibrium.Does it make sense for the firms in the industry to ask the government to force them to make the investment? Explain.

As long as there is asymmetric information among consumers and positive search cost,if price is below the monopoly price and the same across all firms,then a competitive firm

-The market for used cars is shown in the above figure.Neither buyers nor sellers can tell whether any given car is a lemon.Ten percent (10%)of all cars are lemons.Which of the following statements is TRUE?

When consumers have asymmetric information and when search costs and the number of firms are large,a single-price equilibrium in a competitive market

If the market interest rate is 5% and a bank advertises loans at 12%,the bank will receive

Which of the following reduces the effects of asymmetric information?

If an employer cannot distinguish the ability of workers,a separating equilibrium will result.

Empirical studies conclude that advertising

Adverse selection occurs when an agreement encourages undesirable behavior.