Question 1

The winner's curse is more likely when the value of a good at auction is common knowledge.

Accepted Answer

A) True 
 B)False

Question 2

Economies of scope is the term used to describe an industry that is composed of firms having substantial economies of scale.

Accepted Answer

A) True 
 B)False

Question 3

The Criminal Records Corporation is operating at its minimum efficient scale, selling 10, 000 records per month via late-night cable TV advertising.It currently buys pressed records from Hole-in-the-Middle, Inc., which has a minimum efficient scale of 100, 000 records per month.Which of the following should Criminal Records do?

Accepted Answer

A) Continue to buy 10, 000 records from Hole-in-the-Middle, which can make the records more cheaply. 
B) Buy 100, 000 records from Hole-in-the-Middle, so that company can reach its minimum efficient scale too. 
C) Buy Hole-in-the-Middle and use its facilities to manufacture the 10, 000 records it needs. 
D) Buy Hole-in-the-Middle and stop operating as Criminal Records because Hole-in-the-Middle is the more efficient business. 
E) Buy Hole-in-the-Middle and stop operating as Criminal Records because Hole-in-the-Middle is the larger business.

Question 4

The winner's curse is more likely when the value of a good at auction is uncertain.

Accepted Answer

A) True 
 B)False

Question 5

When applying for a loan, a borrower tends to know more about her ability to pay it back than does the bank.This is an example of

Accepted Answer

A) perfect information 
B) moral hazard 
C) a low marginal benefit of information for the bank 
D) asymmetric information 
E) optimal search

Question 6

Adverse selection refers to a situation in which

Accepted Answer

A) employers have more information about a job's salary than the job candidate does 
B) a job candidate has more information about the job's salary than the employer does 
C) employers have more information about a job candidate's abilities than the candidate does 
D) a job candidate has more information about her abilities than the employer does 
E) only below-average job candidates apply for a job

Question 7

Vertical integration has no effect on the internal organization of a firm; it only affects the outside markets.

Accepted Answer

A) True 
 B)False

Question 8

Adverse selection is more likely when a job requires intangible or unmeasurable abilities.

Accepted Answer

A) True 
 B)False

Question 9

Exhibit 14-3  In Exhibit 14-3, the marginal benefit curve reflects

Accepted Answer

A) the fact that as Jira spends more time searching for information about HD televisions, additional information yields less and less improvement in the value of the product she will get 
B) the opportunity cost of the Jira's time 
C) the fact that greater and greater distances must be covered to acquire a marginal piece of information 
D) the fact that the cost of gathering information diminishes as more is gathered 
E) the fact that there is much common knowledge about consumption

Question 10

Wendy's restaurants must decide whether to grow their own potatoes for French fries or buy them.If they buy rather than grow, then they have opted to

Accepted Answer

A) integrate horizontally 
B) allow market prices to guide resource allocation 
C) integrate vertically 
D) allow hierarchical control to guide resource allocation 
E) form an authority relation

Question 11

A wage offer that is above the market wage, intended to avoid the adverse selection problem, is called a(n)

Accepted Answer

A) efficiency wage 
B) union wage 
C) selection wage 
D) spurious wage 
E) opportunity cost wage

Question 12

For most consumers, the process of learning about the efficiency and durability of various brands of refrigerators can be considered

Accepted Answer

A) irrational 
B) unproductive 
C) a vocation 
D) nonmarket work 
E) costless

Question 13

Asymmetric information exists when both sides of a market approach perfect information.

Accepted Answer

A) True 
 B)False

Question 14

A tire manufacturer decides to expand into the production of rubber roofing and as a result finds that its per unit production costs for tires falls.This is an example of economies of scope.

Accepted Answer

A) True 
 B)False

Question 15

One reason many people make their own pickles rather than buy them is that

Accepted Answer

A) they can maintain control over the quality during production 
B) the total cost of ingredients is the same as the price of store-bought pickles 
C) firms do not make high-quality pickles 
D) people place a high value on their time 
E) firms do not produce goods that can be made at home

Question 16

The marginal benefit of acquiring additional information tends to

Accepted Answer

A) be zero if the marginal cost of information is zero 
B) increase and then decrease as additional information is obtained 
C) be smaller, the smaller the quantity of information the individual already has obtained 
D) increase as additional information is obtained 
E) decrease as additional information is obtained

Question 17

A do-it-yourself approach to production is more likely when

Accepted Answer

A) technology is complex 
B) inputs are difficult to identify 
C) resources cannot easily be measured 
D) the price of inputs is known 
E) contracts are complex

Question 18

The academic dean at Esoteric University hires a philosopher to teach one of the 12 sections of a course called "Why Nerf Balls Ingest Hair." Which of the following is true?

Accepted Answer

A) The academic dean is the agent; the philosopher is the principal. 
B) The academic dean is the agent; the students are the principals. 
C) The academic dean is the principal; the students are the agents. 
D) The philosopher is the principal to both the academic dean and the students. 
E) The philosopher is an agent to both the academic dean and the students.

Question 19

Vertical integration is

Accepted Answer

A) the expansion of a firm into earlier or later stages of production 
B) an attempt by a firm to allow market prices to coordinate more transactions 
C) an attempt by a firm to minimize shirking 
D) an attempt by a firm to minimize the need to coordinate transactions within its boundaries 
E) a way for a firm to accumulate information about its competitors

Question 20

According to the search model, the marginal cost of acquiring information about a product

Accepted Answer

A) is greater for a doctor than a nurse's aide 
B) is the same for high-income consumers as for low-income consumers 
C) is greater for expensive items than for cheap items 
D) is greater for cheap items than for expensive items 
E) diminishes as more information is acquired

Exam 14: Transaction Costs, Imperfect Information, and Behavioral Economics

The winner's curse is more likely when the value of a good at auction is common knowledge.

Economies of scope is the term used to describe an industry that is composed of firms having substantial economies of scale.

The winner's curse is more likely when the value of a good at auction is uncertain.

When applying for a loan, a borrower tends to know more about her ability to pay it back than does the bank.This is an example of

Adverse selection refers to a situation in which

Vertical integration has no effect on the internal organization of a firm; it only affects the outside markets.

Adverse selection is more likely when a job requires intangible or unmeasurable abilities.

Exhibit 14-3 In Exhibit 14-3, the marginal benefit curve reflects

Wendy's restaurants must decide whether to grow their own potatoes for French fries or buy them.If they buy rather than grow, then they have opted to

A wage offer that is above the market wage, intended to avoid the adverse selection problem, is called a(n)

For most consumers, the process of learning about the efficiency and durability of various brands of refrigerators can be considered

Asymmetric information exists when both sides of a market approach perfect information.

A tire manufacturer decides to expand into the production of rubber roofing and as a result finds that its per unit production costs for tires falls.This is an example of economies of scope.

One reason many people make their own pickles rather than buy them is that

The marginal benefit of acquiring additional information tends to

A do-it-yourself approach to production is more likely when

The academic dean at Esoteric University hires a philosopher to teach one of the 12 sections of a course called "Why Nerf Balls Ingest Hair." Which of the following is true?

Vertical integration is

According to the search model, the marginal cost of acquiring information about a product