Question 1

Ratings and reviews on online stores are examples of:

Accepted Answer

A)  creating better incentives to prevent moral hazard. 
B)  mitigating adverse selection by increasing information. 
C)  providing better information to customers to prevent moral hazard. 
D)  preventing all forms of information asymmetries. 
A)  creating better incentives to prevent moral hazard. 
B)  mitigating adverse selection by increasing information. 
C)  providing better information to customers to prevent moral hazard. 
D)  preventing all forms of information asymmetries.

Question 2

If some used car sellers will sell their good-quality used car even when the price offered is low, then:

Accepted Answer

A)  the price of used cars will decrease. 
B)  low-quality used cars will not sell. 
C)  sellers of low quality cars will have to sell at a lower price. 
D)  the price of used cars will increase. 
A)  the price of used cars will decrease. 
B)  low-quality used cars will not sell. 
C)  sellers of low quality cars will have to sell at a lower price. 
D)  the price of used cars will increase.

Question 3

When a dentist recommends a costly and unnecessary procedure, this is an example of:

Accepted Answer

A)  moral hazard. 
B)  the principal-agent problem. 
C)  mutually beneficial trades. 
D)  adverse selection. 
A)  moral hazard. 
B)  the principal-agent problem. 
C)  mutually beneficial trades. 
D)  adverse selection.

Question 4

The individual mandate in the Affordable Care Act reduces the price of health insurance policies by pushing people into the insurance pools.

Accepted Answer

A) True 
 B)False

Question 5

Policy makers expect the individual mandate, which compels many individuals to purchase health insurance by law, to do all of the following EXCEPT:

Accepted Answer

A)  prevent the adverse selection death spiral. 
B)  reduce the costs of health insurance for unhealthy people. 
C)  increase the coverage of health insurance. 
D)  reduce health care demand. 
A)  prevent the adverse selection death spiral. 
B)  reduce the costs of health insurance for unhealthy people. 
C)  increase the coverage of health insurance. 
D)  reduce health care demand.

Question 6

A seller who faces adverse selection may:

Accepted Answer

A)  offer for sale only low-quality goods. 
B)  offer for sale only high-quality goods. 
C)  be willing to accept a price that is high. 
D)  sell more of the good. 
A)  offer for sale only low-quality goods. 
B)  offer for sale only high-quality goods. 
C)  be willing to accept a price that is high. 
D)  sell more of the good.

Question 7

Critics of the Affordable Care Act argue that it will increase moral hazard because:

Accepted Answer

A)  people who now have insurance will use more health care. 
B)  people will not purchase the expensive insurance. 
C)  people will not use as much health care. 
D)  doctors will not prescribe as many procedures. 
A)  people who now have insurance will use more health care. 
B)  people will not purchase the expensive insurance. 
C)  people will not use as much health care. 
D)  doctors will not prescribe as many procedures.

Question 8

When an agent tries to exploit an information advantage in a dishonest way, it is called:

Accepted Answer

A)  adverse selection. 
B)  moral hazard. 
C)  signaling. 
D)  information asymmetry. 
A)  adverse selection. 
B)  moral hazard. 
C)  signaling. 
D)  information asymmetry.

Question 9

Because sellers of mortgage-backed securities paid ratings agencies for ratings, the ratings accurately predicted the increased foreclosures in the housing market.

Accepted Answer

A) True 
 B)False

Question 10

What are the arguments supporting the Affordable Care Act?

Accepted Answer

The Affordable Care Act subsidizes the p

Question 11

What market institutions have developed in used car markets to reduce adverse selection?

Accepted Answer

The used car market uses mechanic inspec

Question 12

Which is NOT an example of asymmetric information?

Accepted Answer

A)  an employer not knowing which job candidate will do the best job 
B)  a used car buyer not knowing the maintenance history of a car for sale 
C)  a shopper not knowing the quality of the washing machine he is considering buying 
D)  a doctor prescribing a medication for a patient 
A)  an employer not knowing which job candidate will do the best job 
B)  a used car buyer not knowing the maintenance history of a car for sale 
C)  a shopper not knowing the quality of the washing machine he is considering buying 
D)  a doctor prescribing a medication for a patient

Question 13

Critics of the Affordable Care Act argue that it will:

Accepted Answer

A)  prevent the adverse selection death spiral. 
B)  reduce the costs of health insurance for unhealthy people. 
C)  increase the coverage of health insurance. 
D)  increase health care demand. 
A)  prevent the adverse selection death spiral. 
B)  reduce the costs of health insurance for unhealthy people. 
C)  increase the coverage of health insurance. 
D)  increase health care demand.

Question 14

Markets are not able to handle information asymmetries and will break down when they exist.

Accepted Answer

A) True 
 B)False

Question 15

When one party to an exchange has more or better information than the other party, it is called:

Accepted Answer

A)  adverse selection. 
B)  information asymmetry. 
C)  moral hazard. 
D)  the principle-agent problem. 
A)  adverse selection. 
B)  information asymmetry. 
C)  moral hazard. 
D)  the principle-agent problem.

Question 16

The problem of how a manager can incentivize a worker to work in the interest of the manager is an example of:

Accepted Answer

A)  the principal-agent problem. 
B)  adverse selection. 
C)  moral hazard. 
D)  information asymmetry. 
A)  the principal-agent problem. 
B)  adverse selection. 
C)  moral hazard. 
D)  information asymmetry.

Question 17

Mutually beneficial trades may not occur under moral hazard.

Accepted Answer

A) True 
 B)False

Question 18

When moral hazard occurs, the economy produces goods that no one wants or needs.

Accepted Answer

A) True 
 B)False

Question 19

If education takes time to obtain but does not add to productivity, it creates an inefficiency.

Accepted Answer

A) True 
 B)False

Question 20

The adverse selection death spiral in health insurance can be prevented by:

Accepted Answer

A)  selling health insurance plans to groups, such as through the workplace. 
B)  requiring people to only purchase health insurance in individual policy markets. 
C)  requiring health exams prior to issuing a policy and charging higher prices to healthy people. 
D)  making policy buyers aware of the potential for the death spiral. 
A)  selling health insurance plans to groups, such as through the workplace. 
B)  requiring people to only purchase health insurance in individual policy markets. 
C)  requiring health exams prior to issuing a policy and charging higher prices to healthy people. 
D)  making policy buyers aware of the potential for the death spiral.

Exam 24: Price Discrimination

Ratings and reviews on online stores are examples of:

If some used car sellers will sell their good-quality used car even when the price offered is low, then:

When a dentist recommends a costly and unnecessary procedure, this is an example of:

The individual mandate in the Affordable Care Act reduces the price of health insurance policies by pushing people into the insurance pools.

Policy makers expect the individual mandate, which compels many individuals to purchase health insurance by law, to do all of the following EXCEPT:

A seller who faces adverse selection may:

Critics of the Affordable Care Act argue that it will increase moral hazard because:

When an agent tries to exploit an information advantage in a dishonest way, it is called:

Because sellers of mortgage-backed securities paid ratings agencies for ratings, the ratings accurately predicted the increased foreclosures in the housing market.

What are the arguments supporting the Affordable Care Act?

What market institutions have developed in used car markets to reduce adverse selection?

Which is NOT an example of asymmetric information?

Critics of the Affordable Care Act argue that it will:

Markets are not able to handle information asymmetries and will break down when they exist.

When one party to an exchange has more or better information than the other party, it is called:

The problem of how a manager can incentivize a worker to work in the interest of the manager is an example of:

Mutually beneficial trades may not occur under moral hazard.

When moral hazard occurs, the economy produces goods that no one wants or needs.

If education takes time to obtain but does not add to productivity, it creates an inefficiency.

The adverse selection death spiral in health insurance can be prevented by:

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Consumer Choice

Filters