Question 1

Certifying a used car through a brand dealership is one way to:

Accepted Answer

A)  credibly screen out lemons.
B)  credibly signal the car is not a lemon.
C)  unreliably screen out lemons.
D)  unreliably signal that the car is not a lemon.E) B) and C)
F) A) and B)

Question 2

Moral hazard is a problem that arises _____ the parties have entered into an agreement.

Accepted Answer

A)  before
B)  after
C)  either before or after
D)  Moral hazard does not relate to parties entering into an agreement.E) B) and C)
F) A) and D)

Question 3

A good reputation in a market:

Accepted Answer

A)  is easy to fake.
B)  can take a long time to establish.
C)  is not of significant value to a seller.
D)  All of these are true.E) B) and D)
F) A) and D)

Question 4

Which of the following is an example of screening during the hiring process?

Accepted Answer

A)  A skills test
B)  An interview
C)  Checking references
D)  All of these are ways to screen candidates.E) C) and D)
F) B) and C)

Question 5

A motorist who chooses high-deductible auto insurance over low-deductible insurance is signaling that he is:

Accepted Answer

A)  a safe driver.
B)  a reckless driver.
C)  likely to earn a low income.
D)  unlikely to have funds to pay the deductible.E) A) and B)
F) C) and D)

Question 6

Some policy makers have suggested that mandatory health insurance coverage would:

Accepted Answer

A)  help reduce the cost of health care.
B)  overcome adverse selection in the market for health insurance.
C)  keep premiums lower than they would be if healthy people could opt out of insurance.
D)  All of these are true.E) All of the above
F) None of the above

Question 7

The used car market:

Accepted Answer

A)  exemplifies the "lemons" problem.
B)  displays asymmetric information.
C)  is subject to the problem of adverse selection.
D)  All of these are true.E) A) and B)
F) B) and C)

Question 8

Disclosure laws are an example of how the government:

Accepted Answer

A)  attempts to solve information asymmetry in markets.
B)  attempts to screen unethical businesses out of the marketplace.
C)  forces businesses to signal credibility to consumers.
D)  helps businesses build their reputations.E) All of the above
F) C) and D)

Question 9

Statistical discrimination:

Accepted Answer

A)  can limit individuals' opportunities simply because they belong to a certain group.
B)  is an irrational response to information asymmetry.
C)  is always a legal solution to information asymmetry.
D)  All of these are true.E) B) and C)
F) A) and C)

Question 10

The "lemons" problem is used to explain the concept of:

Accepted Answer

A)  complete information.
B)  adverse selection.
C)  moral hazard.
D)  produce markets.E) None of the above
F) A) and D)

Question 11

Moral hazard focuses on_____, while adverse selection focuses on _____.

Accepted Answer

A)  unobserved characteristics of people occurring before parties enter into an agreement; actions that arise after the parties enter an agreement
B)  what can happen in the absence of information asymmetries; actions that require information asymmetry
C)  actions that arise after the parties enter an agreement; unobserved characteristics of people occurring before parties enter into an agreement
D)  None of these statements are true.E) None of the above
F) All of the above

Question 12

An employer only hiring applicants who have college degrees is an example of

Accepted Answer

A)  proofing.
B)  moral hazard.
C)  screening.
D)  mandating that information be shared.E) A) and B)
F) A) and C)

Question 13

When information asymmetry exists in a market, the government:

Accepted Answer

A)  always steps in to try to correct it.
B)  never steps in to try to correct it.
C)  sometimes steps in to try to correct it.
D)  only steps in to correct it if complete information can be ensured.E) B) and C)
F) A) and D)

Question 14

Imbalances in information can cause problems between:

Accepted Answer

A)  buyers and sellers.
B)  lenders and borrowers.
C)  employers and employees.
D)  All of these are true.E) C) and D)
F) B) and D)

Question 15

Why might dressing well for a job interview not be an effective signal?

Accepted Answer

A)  People who are more serious about getting a job will make the investment in a new suit.
B)  Buying a suit takes time away from studying.
C)  It is costly for a person who's not very interested in the job to buy a new suit.
D)  It is easy for a low productivity worker to send this signal.E) A) and D)
F) C) and D)

Question 16

Auto insurance companies charge higher insurance premiums for plans with lower deductibles as a way of:

Accepted Answer

A)  screening between types of drivers.
B)  avoiding moral hazard.
C)  reducing the lemons problem.
D)  optimizing information acquisition.E) A) and B)
F) None of the above

Question 17

Governments choose to mandate participation in a program, such as auto insurance, when:

Accepted Answer

A)  the functioning of the market or program is thought to be in the public interest.
B)  the market or program would not otherwise exist.
C)  the market or program would otherwise exist illegally.
D)  None of these are true.E) All of the above
F) B) and D)

Question 18

Building a good reputation is a form of:

Accepted Answer

A)  screening.
B)  signaling.
C)  statistical discrimination.
D)  None of these are true.E) B) and C)
F) A) and B)

Question 19

The government can help solve an information asymmetry problem by:

Accepted Answer

A)  telling less informed parties not to participate in the market.
B)  excluding those who do not have complete information from the market.
C)  making markets with significant information asymmetry illegal.
D)  requiring the more informed party to reveal the missing information.E) None of the above
F) All of the above

Question 20

Asymmetric information in a transaction can result in:

Accepted Answer

A)  moral hazard.
B)  adverse selection.
C)  a lemons problem.
D)  All of these can result from asymmetric information.E) B) and C)
F) A) and D)

Exam 10: Information

Certifying a used car through a brand dealership is one way to:

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Some policy makers have suggested that mandatory health insurance coverage would:

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Building a good reputation is a form of:

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When information asymmetry exists in a market, the government:

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Moral hazard focuses on_____, while adverse selection focuses on _____.

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Auto insurance companies charge higher insurance premiums for plans with lower deductibles as a way of:

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A motorist who chooses high-deductible auto insurance over low-deductible insurance is signaling that he is:

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The used car market:

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Moral hazard is a problem that arises _____ the parties have entered into an agreement.

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Statistical discrimination:

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Asymmetric information in a transaction can result in:

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An employer only hiring applicants who have college degrees is an example of

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Disclosure laws are an example of how the government:

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A good reputation in a market:

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The government can help solve an information asymmetry problem by:

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Imbalances in information can cause problems between:

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Governments choose to mandate participation in a program, such as auto insurance, when:

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The "lemons" problem is used to explain the concept of:

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Why might dressing well for a job interview not be an effective signal?

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Which of the following is an example of screening during the hiring process?

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Moral hazard focuses on_, while adverse selection focuses on _.

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