Question 1

Markets work best when:

Accepted Answer

A)  buyers know exactly what they are buying. 
B)  sellers signal exactly what they are selling. 
C)  both buyers and sellers have at least some information about what is being exchanged. 
D)  both buyers and sellers know what is being exchanged. 
A)  buyers know exactly what they are buying. 
B)  sellers signal exactly what they are selling. 
C)  both buyers and sellers have at least some information about what is being exchanged. 
D)  both buyers and sellers know what is being exchanged.

Question 2

Which is NOT a way to lessen moral hazard?

Accepted Answer

A)  provide better access to ratings and reviews 
B)  split the selling of a service from the diagnosis of need for the service 
C)  allow the sellers of a product to pay for the ratings or reviews of a product 
D)  allow buyers to get a second opinion of the diagnosis 
A)  provide better access to ratings and reviews 
B)  split the selling of a service from the diagnosis of need for the service 
C)  allow the sellers of a product to pay for the ratings or reviews of a product 
D)  allow buyers to get a second opinion of the diagnosis

Question 3

Bureaucrats have more information than politicians and may use that information in their own interest. This is:

Accepted Answer

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

Question 4

Sellers on eBay with good reputations are able to sell at a higher price.

Accepted Answer

A) True 
 B)False

Question 5

An inefficiency in obtaining education to signal IQ or work ethic is:

Accepted Answer

A)  that education is relatively inexpensive. 
B)  that there may be a cheaper way to signal these. 
C)  reduced time to work. 
D)  too much work is needed. 
A)  that education is relatively inexpensive. 
B)  that there may be a cheaper way to signal these. 
C)  reduced time to work. 
D)  too much work is needed.

Question 6

When a mechanic suggests a repair that is not necessary, this is an example of the principal-agent problem.

Accepted Answer

A) True 
 B)False

Question 7

Many forms of information are a public good, which means that:

Accepted Answer

A)  all information is free, so users do not have to pay for it. 
B)  all information is costless to obtain. 
C)  it is difficult to exclude nonpayers from using it. 
D)  information is readily available to users. 
A)  all information is free, so users do not have to pay for it. 
B)  all information is costless to obtain. 
C)  it is difficult to exclude nonpayers from using it. 
D)  information is readily available to users.

Question 8

Explain why Hyundai Motor Company needed to signal that they were building a higher quality car and how they chose to signal. Were they successful?

Accepted Answer

Hyundai Motor Company cars were inexpens

Question 9

When sellers pay ratings agencies to rate their goods or services:

Accepted Answer

A)  buyers of the goods and services will be more likely to buy. 
B)  the ratings are very likely to be accurate. 
C)  they are less likely to give better ratings than if buyers paid. 
D)  they are more likely to give better ratings than if buyers paid. 
A)  buyers of the goods and services will be more likely to buy. 
B)  the ratings are very likely to be accurate. 
C)  they are less likely to give better ratings than if buyers paid. 
D)  they are more likely to give better ratings than if buyers paid.

Question 10

Which is an example of moral hazard?

Accepted Answer

A)  A hair dresser colors poorly a client's hair. 
B)  A driver drives faster than the speed limit. 
C)  A car dealership offers a warranty. 
D)  A car salesman recommends a car that has been wrecked and repaired. 
A)  A hair dresser colors poorly a client's hair. 
B)  A driver drives faster than the speed limit. 
C)  A car dealership offers a warranty. 
D)  A car salesman recommends a car that has been wrecked and repaired.

Question 11

Obstetricians are paid more for delivering a baby via caesarian section. This can create:

Accepted Answer

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

Question 12

Paying a lawyer on a contingency fee-the lawyer is paid only if the case is won-solves moral hazard by:

Accepted Answer

A)  aligning the incentives of the buyer and sellers. 
B)  creating more information. 
C)  providing the service free. 
D)  reducing the free-rider problem. 
A)  aligning the incentives of the buyer and sellers. 
B)  creating more information. 
C)  providing the service free. 
D)  reducing the free-rider problem.

Question 13

What signal does an engagement ring send? Why does it have to be expensive?

Accepted Answer

An engagement ring sends the s

Question 14

A woman who keeps her maiden name when she marries is signaling:

Accepted Answer

A)  a strong desire to continue to build a career reputation. 
B)  a decreased commitment to her marriage. 
C)  an increased desire to divorce in the future. 
D)  the difficulty of changing one's name. 
A)  a strong desire to continue to build a career reputation. 
B)  a decreased commitment to her marriage. 
C)  an increased desire to divorce in the future. 
D)  the difficulty of changing one's name.

Question 15

A signal:

Accepted Answer

A)  is an offer that conveys negative information about the product. 
B)  is an agent trying to exploit an information advantage in a dishonest way. 
C)  occurs when one party to a transaction has more information than the other party. 
D)  is an expensive action that is taken to reveal information. 
A)  is an offer that conveys negative information about the product. 
B)  is an agent trying to exploit an information advantage in a dishonest way. 
C)  occurs when one party to a transaction has more information than the other party. 
D)  is an expensive action that is taken to reveal information.

Question 16

Universities who report information to U.S. News and World Report:

Accepted Answer

A)  may manipulate the data they send to ensure a higher ranking. 
B)  always provide accurate data, so that the rankings are useful. 
C)  sometimes will not admit students until they re-take the SAT, ensuring higher scores. 
D)  are forbidden to use their rankings in advertisements. 
A)  may manipulate the data they send to ensure a higher ranking. 
B)  always provide accurate data, so that the rankings are useful. 
C)  sometimes will not admit students until they re-take the SAT, ensuring higher scores. 
D)  are forbidden to use their rankings in advertisements.

Question 17

One reason unemployed people have a harder time getting hired than do similar employed workers is because looking for a new job is:

Accepted Answer

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

Question 18

Markets have developed institutions to deal with information asymmetries including all of the following EXCEPT:

Accepted Answer

A)  reviews. 
B)  certifications. 
C)  contingency fees. 
D)  reduced prices. 
A)  reviews. 
B)  certifications. 
C)  contingency fees. 
D)  reduced prices.

Question 19

Signaling generates benefits without inefficiency.

Accepted Answer

A) True 
 B)False

Question 20

The "sheepskin effect" describes the result that people with completed degrees:

Accepted Answer

A)  earn more than people who nearly finish a degree. 
B)  get more job offers. 
C)  have the qualities that are desirable in an employee. 
D)  are able to find a better educated spouse. 
A)  earn more than people who nearly finish a degree. 
B)  get more job offers. 
C)  have the qualities that are desirable in an employee. 
D)  are able to find a better educated spouse.

Exam 24: Price Discrimination

Markets work best when:

Which is NOT a way to lessen moral hazard?

Bureaucrats have more information than politicians and may use that information in their own interest. This is:

Sellers on eBay with good reputations are able to sell at a higher price.

An inefficiency in obtaining education to signal IQ or work ethic is:

When a mechanic suggests a repair that is not necessary, this is an example of the principal-agent problem.

Many forms of information are a public good, which means that:

Explain why Hyundai Motor Company needed to signal that they were building a higher quality car and how they chose to signal. Were they successful?

When sellers pay ratings agencies to rate their goods or services:

Which is an example of moral hazard?

Obstetricians are paid more for delivering a baby via caesarian section. This can create:

Paying a lawyer on a contingency fee-the lawyer is paid only if the case is won-solves moral hazard by:

What signal does an engagement ring send? Why does it have to be expensive?

A woman who keeps her maiden name when she marries is signaling:

A signal:

Universities who report information to U.S. News and World Report:

One reason unemployed people have a harder time getting hired than do similar employed workers is because looking for a new job is:

Markets have developed institutions to deal with information asymmetries including all of the following EXCEPT:

Signaling generates benefits without inefficiency.

The "sheepskin effect" describes the result that people with completed degrees:

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