Question 1

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 2

Adverse selection can occur when

Accepted Answer

A) all persons involved in a transaction have full information. 
B) one person has information not available to others. 
C) post-agreement incentives result in workers shirking. 
D) nobody has any information about a particular product. 
A) all persons involved in a transaction have full information. 
B) one person has information not available to others. 
C) post-agreement incentives result in workers shirking. 
D) nobody has any information about a particular product.

Question 3

Explain why high priced lawyers may support an industry ban on price advertising for lawyers.

Accepted Answer

An advertising ban that prohibits lawyer

Question 4

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 5

New smartphone applications are developed to help consumers find the cheapest prices in the neighborhood.Therefore,

Accepted Answer

A) the local competitive will become more intensive. 
B) the prices of goods listed in the application will be lowered. 
C) price discrimination will occur against consumers without a smartphone or this application. 
D) All of the above. 
A) the local competitive will become more intensive. 
B) the prices of goods listed in the application will be lowered. 
C) price discrimination will occur against consumers without a smartphone or this application. 
D) All of the above.

Question 6

-Joe wants to achieve the highest position possible with the XYZ Co.During the interview,he tells them he is capable of performing many difficult tasks.The company feels there is an 10% chance he is lying.Given the payoff matrix in the above figure,what job level will the company offer to Joe? Why?

Accepted Answer

The expected payoff to the firm of givin

Question 7

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 8

-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 at $1,600. 
B) No cars will be sold. 
C) Only lemons will be sold at $1,600. 
D) Only lemons will be sold at $1,000. 
A) All of the cars will be sold at $1,600. 
B) No cars will be sold. 
C) Only lemons will be sold at $1,600. 
D) Only lemons will be sold at $1,000.

Question 9

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 10

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.The percent of all cars that are lemons is θ.What value of θ is necessary for all cars to be sold?

Accepted Answer

The sellers of good cars have a reservat

Question 11

When relatively few workers have high ability,

Accepted Answer

A) they will settle for the average wage. 
B) they will want to signal their ability. 
C) the premium for high ability is less than when most workers have high ability. 
D) they do not need to signal their ability. 
A) they will settle for the average wage. 
B) they will want to signal their ability. 
C) the premium for high ability is less than when most workers have high ability. 
D) they do not need to signal their ability.

Question 12

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 13

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.For all cars offered for sale to be sold,the percent of all cars that are lemons is θ.What happens to θ if car buyers incur a $100 transaction cost when buying a used car?

Accepted Answer

The sellers of good cars have a reservat

Question 14

Suppose 10% of all workers are of high ability.If a firm knows a worker's ability,workers of low ability are paid $20,000 and workers of high ability are paid $30,000.A college degree can signal ability,and the cost of the degree is $11,000.Will there be a pooling equilibrium or a separating equilibrium?

Accepted Answer

Under a pooling equilibrium,all workers

Question 15

The Internet has made it possible to compare lots of prices without incurring a lot of cost.This

Accepted Answer

A) has given firms added market power to price discriminate. 
B) has significantly reduced search cost and made markets more competitive. 
C) has enabled firms to charge higher prices to consumers with computers. 
D) has only affected technology markets. 
A) has given firms added market power to price discriminate. 
B) has significantly reduced search cost and made markets more competitive. 
C) has enabled firms to charge higher prices to consumers with computers. 
D) has only affected technology markets.

Question 16

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 17

If a life insurance company does not require a medical exam of its policyholders,it is most likely that the company

Accepted Answer

A) charges above-average premiums. 
B) charges below-average premiums. 
C) charges no premiums. 
D) has only very healthy policyholders. 
A) charges above-average premiums. 
B) charges below-average premiums. 
C) charges no premiums. 
D) has only very healthy policyholders.

Question 18

The cost,c,of a college education that serves only as a signal of a high-quality worker is $20,000.The wage of a known high-quality worker,wh,is $75,000.The wage for a known low-quality worker,w1,is $50,000.For what value of the share of the work force that is of high quality,t,is a pooling equilibrium possible?

Accepted Answer

The high-quality workers will not go to

Question 19

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.

Question 20

A person who practices poisonous snake charming and does not reveal this to her health insurance company before purchasing insurance is an example of

Accepted Answer

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

Adverse selection occurs when there is

Adverse selection can occur when

Explain why high priced lawyers may support an industry ban on price advertising for lawyers.

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

New smartphone applications are developed to help consumers find the cheapest prices in the neighborhood.Therefore,

-Joe wants to achieve the highest position possible with the XYZ Co.During the interview,he tells them he is capable of performing many difficult tasks.The company feels there is an 10% chance he is lying.Given the payoff matrix in the above figure,what job level will the company offer to Joe? Why?

Asymmetric information will always cause

-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?

In the automobile insurance market,adverse selection occurs when

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.The percent of all cars that are lemons is θ.What value of θ is necessary for all cars to be sold?

When relatively few workers have high ability,

Opportunism may occur when

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.For all cars offered for sale to be sold,the percent of all cars that are lemons is θ.What happens to θ if car buyers incur a $100 transaction cost when buying a used car?

The Internet has made it possible to compare lots of prices without incurring a lot of cost.This

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

If a life insurance company does not require a medical exam of its policyholders,it is most likely that the company

Screening and signaling in the labor market are inefficient

A person who practices poisonous snake charming and does not reveal this to her health insurance company before purchasing insurance is an example of

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Uncertainty

Property Rights, Externalities, Rivalry, and Exclusion

Contracts and Moral Hazards

Filters

Exam 18: Asymmetric Information

Adverse selection occurs when there is

Adverse selection can occur when

Explain why high priced lawyers may support an industry ban on price advertising for lawyers.

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

New smartphone applications are developed to help consumers find the cheapest prices in the neighborhood.Therefore,

-Joe wants to achieve the highest position possible with the XYZ Co.During the interview,he tells them he is capable of performing many difficult tasks.The company feels there is an 10% chance he is lying.Given the payoff matrix in the above figure,what job level will the company offer to Joe? Why?

Asymmetric information will always cause

-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?

In the automobile insurance market,adverse selection occurs when

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.The percent of all cars that are lemons is θ.What value of θ is necessary for all cars to be sold?

When relatively few workers have high ability,

Opportunism may occur when

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.For all cars offered for sale to be sold,the percent of all cars that are lemons is θ.What happens to θ if car buyers incur a $100 transaction cost when buying a used car?

The Internet has made it possible to compare lots of prices without incurring a lot of cost.This

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

If a life insurance company does not require a medical exam of its policyholders,it is most likely that the company

Screening and signaling in the labor market are inefficient

A person who practices poisonous snake charming and does not reveal this to her health insurance company before purchasing insurance is an example of

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Uncertainty

Property Rights, Externalities, Rivalry, and Exclusion

Contracts and Moral Hazards

Filters