Question 1

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 D)
F) B) and C)

Question 2

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) A) and B)

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) None of the above
F) All of the above

Question 4

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 C)
F) C) and D)

Question 5

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) A) and C)

Question 6

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) B) and D)
F) All of the above

Question 7

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) B) and D)
F) A) and B)

Question 8

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) All of the above

Question 9

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) None of the above
F) B) and C)

Question 10

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) A) and C)
F) A) and D)

Question 11

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) All of the above
F) None of the above

Question 12

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) A) and D)

Question 13

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) All of the above

Question 14

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) A) and B)
F) C) and D)

Question 15

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) B) and C)
F) A) and C)

Question 16

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) A) and C)
F) None of the above

Question 17

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) All of the above
F) None of the above

Question 18

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) B) and C)
F) A) and B)

Question 19

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) All of the above
F) A) and D)

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) C) and D)
F) B) and D)

Exam 10: Information

Disclosure laws are an example of how the government:

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

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A good reputation in a market:

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

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

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The used car market:

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

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

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

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The government can help solve an information asymmetry problem by:

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

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Asymmetric information in a transaction can result in:

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

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Statistical discrimination:

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Building a good reputation is a form of:

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

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

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When information asymmetry exists in a market, the government:

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Imbalances in information can cause problems between:

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

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