Question 1

Which of the following would be an example of a transaction later regretted because it was made with incomplete information?

Accepted Answer

A)  Tim bought products that proved to be shoddy.
B)  Sue lent money to an acquaintance who turned out to be a deadbeat.
C)  Larry moved to a new apartment with terrible plumbing or a leaky roof.
D)  All of these are good examples of incomplete information.E) B) and C)
F) A) and B)

Question 2

Screening is when someone takes action to:

Accepted Answer

A)  reveal private information about someone else.
B)  reveal one's own private information.
C)  find out the opportunity cost of acquiring more information.
D)  None of these statements is true.E) A) and B)
F) None of the above A

Question 3

A drug test offered to an applicant is a method of:

Accepted Answer

A)  signaling.
B)  screening.
C)  statistical discrimination.
D)  building a reputation.E) A) and B)
F) C) and D)

Question 4

An example of a market subject to adverse selection would be:

Accepted Answer

A)  the used car market.
B)  the auto repair market.
C)  the appliance market.
D)  All of these are markets subject to adverse selection.E) B) and D)
F) A) and B)

Question 5

Both screening and signaling:

Accepted Answer

A)  correct inefficiency in the market.
B)  allow more transactions to take place that are valuable to buyers and sellers.
C)  can increase surplus gained in a market.
D)  All of these statements are true.E) B) and D)
F) B) and C) D

Question 6

The private information revealed during screening typically refers to information:

Accepted Answer

A)  that is personal.
B)  that is embarrassing.
C)  that is not public.
D)  that individuals generally do not want anyone to find out.E) A) and B)
F) All of the above

Question 7

An example of a market subject to adverse selection would be:

Accepted Answer

A)  the used car market.
B)  the insurance market.
C)  the financial market.
D)  All of these statements are true.E) B) and C)
F) None of the above

Question 8

Which of the following is an example of a transaction that is made even though complete information is not possible?

Accepted Answer

A)  Joe buys a puppy in hopes that the puppy will be his hiking companion for the next 20 years.
B)  Alex buys house insurance and has never filed a claim.
C)  Mike saves his money by putting it in a mutual fund.
D)  All of these are examples of transactions that must be made with incomplete information.E) All of the above
F) A) and D)

Question 9

The government can help solve the information asymmetry problem by:

Accepted Answer

A)  providing the missing information to the less-informed party.
B)  making it illegal to complete a transaction without complete information.
C)  requiring the more informed party to not use the imbalance to their advantage.
D)  All of these statements are true.E) None of the above
F) A) and C)

Question 10

An example of statistical discrimination would be:

Accepted Answer

A)  charging young drivers a higher premium than older drivers.
B)  charging homes near a lake higher premiums for flood insurance than those on a hill.
C)  assuming the food will be better at an Italian restaurant than a Chinese one in the Little Italy neighborhood of NYC.
D)  All of these are examples of statistical discrimination.E) None of the above
F) A) and D)

Question 11

The amount of disclosure laws in the United States:

Accepted Answer

A)  has greatly increased the amount of information provided to consumers.
B)  has caused so much "fine print" that consumers actually use very little of the information provided it in.
C)  provides so much information,the overload causes consumers to ignore it and therefore the laws on the whole have no effect on solving the information asymmetry problem.
D)  All of these statements are true.E) A) and D)
F) B) and C) D

Question 12

Generalizing using statistical discrimination is not always:

Accepted Answer

A)  All of these statements are true.
B)  legal.
C)  ethical.
D)  admirable.E) A) and B)
F) A) and C)

Question 13

The principal-agent problem:

Accepted Answer

A)  arises from an imbalance of information.
B)  is caused by the principal having imperfect information about the agent.
C)  is caused by the agent being the only party with complete information.
D)  All of these statements are true.E) C) and D)
F) None of the above

Question 14

The key to a successful positive signal is:

Accepted Answer

A)  it is not easily faked.
B)  credible.
C)  it is inaccessible to those it is meant to exclude.
D)  All of these statements are true.E) None of the above
F) A) and D)

Question 15

In the early 2000s,the government passed laws requiring banks and mortgage brokers to disclose the terms of home loans.This action by the government was an attempt to:

Accepted Answer

A)  solve the information asymmetry problem,but did not work.
B)  solve the information asymmetry problem and led to an improvement in the housing market.
C)  screen out risky or shady banks and mortgage brokers.
D)  signal to consumers that the government cared about the value of their homes.E) A) and B)
F) A) and C)

Question 16

The nutritional information now available at many fast food restaurants is an example of:

Accepted Answer

A)  a failed attempt by government to reduce information asymmetry.
B)  requiring the more informed party to reveal the missing information.
C)  government regulation to screen out unhealthy food for consumers.
D)  government requiring the restaurants to signal whether food is healthy or not.E) None of the above
F) B) and C)

Question 17

An important type of information asymmetry is:

Accepted Answer

A)  moral hazard.
B)  information withholding.
C)  advantage imbalance.
D)  ethical constraint.E) A) and D)
F) A) and B)

Question 18

In the early 2000s,laws requiring banks and mortgage brokers to disclose the terms of home loans:

Accepted Answer

A)  failed to prevent many Americans from entering into irresponsible mortgage agreements.
B)  were an example of how the government can act to solve the information asymmetry problem.
C)  were so numerous and detailed that borrowers didn't read or understand the information the companies had disclosed.
D)  All of these statements are true.E) B) and C)
F) B) and D)

Question 19

Disclosure laws:

Accepted Answer

A)  are an example of how government attempts to solve information asymmetry in markets.
B)  can help solve information asymmetry,but can cause other problems.
C)  can result in information overload.
D)  All of these statements are true.E) B) and C)
F) A) and B)

Question 20

Statistical discrimination using gender and age:

Accepted Answer

A)  is legal in the insurance market,but not the job market.
B)  is legal in the job market,but not the insurance market.
C)  is legal in any market,but using race is not.
D)  is illegal in any market.E) A) and C)
F) B) and D)

Exam 10: Information

Which of the following would be an example of a transaction later regretted because it was made with incomplete information?

Correct AnswerverifiedShow Answer

Screening is when someone takes action to:

Correct AnswerverifiedA

A drug test offered to an applicant is a method of:

Correct AnswerverifiedShow Answer

An example of a market subject to adverse selection would be:

Correct AnswerverifiedShow Answer

Both screening and signaling:

Correct AnswerverifiedD

The private information revealed during screening typically refers to information:

Correct AnswerverifiedShow Answer

An example of a market subject to adverse selection would be:

Correct AnswerverifiedShow Answer

Which of the following is an example of a transaction that is made even though complete information is not possible?

Correct AnswerverifiedShow Answer

The government can help solve the information asymmetry problem by:

Correct AnswerverifiedShow Answer

An example of statistical discrimination would be:

Correct AnswerverifiedShow Answer

The amount of disclosure laws in the United States:

Correct AnswerverifiedD

Generalizing using statistical discrimination is not always:

Correct AnswerverifiedShow Answer

The principal-agent problem:

Correct AnswerverifiedShow Answer

The key to a successful positive signal is:

Correct AnswerverifiedShow Answer

In the early 2000s,the government passed laws requiring banks and mortgage brokers to disclose the terms of home loans.This action by the government was an attempt to:

Correct AnswerverifiedShow Answer

The nutritional information now available at many fast food restaurants is an example of:

Correct AnswerverifiedShow Answer

An important type of information asymmetry is:

Correct AnswerverifiedShow Answer

In the early 2000s,laws requiring banks and mortgage brokers to disclose the terms of home loans:

Correct AnswerverifiedShow Answer

Disclosure laws:

Correct AnswerverifiedShow Answer

Statistical discrimination using gender and age:

Correct AnswerverifiedShow Answer

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D

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