Question 1

An auto insurance company offering discounts to students with high grades in school an example of:

Accepted Answer

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

Question 2

The "private" information revealed during screening typically refers to information that is:

Accepted Answer

A)  personal.
B)  embarrassing.
C)  not public.
D)  hidden for a reason.E) A) and B)
F) A) and C)

Question 3

Moral hazard _____ when adverse selection is a problem.

Accepted Answer

A)  always occurs
B)  never occurs
C)  can occur
D)  Moral hazard is not related to adverse selection.E) None of the above
F) A) and D)

Question 4

Governments can use public regulation to help solve information asymmetry problems by:

Accepted Answer

A)  mandating participation in a market or program.
B)  making screening illegal.
C)  mandating that employers build a reputation before screening.
D)  All of these are true.E) A) and B)
F) A) and D)

Question 5

When you are considering a decision but lack full information, you should:

Accepted Answer

A)  obtain more information only if the benefit of the information is greater than the opportunity cost of getting it.
B)  always seek out the most information you can before making a decision.
C)  not make the decision without complete information.
D)  obtain more information if there is any benefit at all to getting the information.E) B) and D)
F) A) and D)

Question 6

Individuals with an expensive pre-existing condition are more likely to purchase health insurance, which exemplifies _____. Individuals who have health insurance visit the doctor more frequently than individuals who are uninsured, which exemplifies _____.

Accepted Answer

A)  moral hazard; adverse selection
B)  adverse selection; moral hazard
C)  statistical discrimination; adverse selection
D)  adverse selection; the principal-agent problemE) B) and C)
F) A) and D)

Question 7

What is one way to avoid the principal-agent problem in the workplace?

Accepted Answer

A)  The employee constantly monitors the employer's activities.
B)  The employer constantly monitors the employee's efforts.
C)  The employer shares all management choices with employees before making decisions.
D)  The employee signs a waiver of release.E) All of the above
F) B) and D)

Question 8

Taking action to reveal one's own private information is called:

Accepted Answer

A)  screening.
B)  signaling.
C)  statistical discrimination.
D)  proofing.E) A) and D)
F) A) and C)

Question 9

A well-known brand name associated with high quality:

Accepted Answer

A)  is of value to consumers.
B)  can take a long time to establish.
C)  can be costly to maintain.
D)  All of these are true.E) B) and C)
F) None of the above D

Question 10

Which of the following is one way employers can minimize moral hazard?

Accepted Answer

A)  Monitor employees' computer activity
B)  Offer bonuses for consistent productivity
C)  Set up video cameras in the workplace
D)  All of these are ways to minimize moral hazard.E) B) and C)
F) A) and D)

Question 11

Statistical discrimination is sometimes:

Accepted Answer

A)  illegal.
B)  unethical.
C)  not useful.
D)  All of these are true.E) A) and C)
F) C) and D)

Question 12

The government requires that every driver have some form of car insurance to address the problem of:

Accepted Answer

A)  moral hazard.
B)  illegal screening.
C)  adverse selection.
D)  statistical discrimination.E) A) and B)
F) A) and C)

Question 13

Filling gaps in your information by generalizing based on observable characteristics is called:

Accepted Answer

A)  statistical discrimination.
B)  signaling.
C)  building a reputation.
D)  proofing.E) None of the above
F) All of the above

Question 14

Disclosure laws:

Accepted Answer

A)  are an example of how the government attempts to assert control.
B)  always help solve information asymmetry, but can cause other problems.
C)  can result in information overload.
D)  All of these are true.E) B) and D)
F) None of the above

Question 15

User reviews of a product on the manufacturer's website reassure buyers of the product's quality. This is an example of:

Accepted Answer

A)  screening.
B)  building a reputation.
C)  statistical discrimination.
D)  researching.E) A) and C)
F) All of the above

Question 16

Job candidates will seek to provide potential employers with _____ while avoiding _____.

Accepted Answer

A)  positive signals; negative signals
B)  as much information as possible; private information
C)  positive signals; private information
D)  truthful information; false informationE) B) and C)
F) All of the above

Question 17

Adverse selection is a problem that arises _____ the parties have entered into an agreement.

Accepted Answer

A)  before
B)  after
C)  either before or after
D)  Adverse selection is not related to an agreement between parties.E) A) and B)
F) None of the above

Question 18

Which of the following is a classic example of adverse selection?

Accepted Answer

A)  People who have health insurance taking poor care of their health.
B)  Workers who put in less effort when their effort isn't closely monitored.
C)  The imbalance of information that exists between used car buyers and sellers.
D)  Drivers with insurance who tend to drive more recklessly.E) None of the above
F) A) and B) C

Question 19

In order for a college degree to be effective as a signal of worker productivity:

Accepted Answer

A)  it must be easy for everyone to get a college degree.
B)  it must be costly for low productivity workers to get a college degree.
C)  potential employers must understand the principal-agent problem.
D)  it must completely eliminate moral hazard.E) A) and B)
F) All of the above

Question 20

Adverse selection:

Accepted Answer

A)  relates to actions and occurs after parties have voluntarily entered into an agreement.
B)  is always present when moral hazard arises.
C)  relates to unobserved characteristics of people or goods and occurs before parties have entered into an agreement.
D)  All of these statements are true.E) A) and B)
F) A) and C)

Exam 10: Information

An auto insurance company offering discounts to students with high grades in school an example of:

Correct AnswerverifiedC

The "private" information revealed during screening typically refers to information that is:

Correct AnswerverifiedShow Answer

Moral hazard _____ when adverse selection is a problem.

Correct AnswerverifiedShow Answer

Governments can use public regulation to help solve information asymmetry problems by:

Correct AnswerverifiedShow Answer

When you are considering a decision but lack full information, you should:

Correct AnswerverifiedShow Answer

Individuals with an expensive pre-existing condition are more likely to purchase health insurance, which exemplifies _____. Individuals who have health insurance visit the doctor more frequently than individuals who are uninsured, which exemplifies _____.

Correct AnswerverifiedShow Answer

What is one way to avoid the principal-agent problem in the workplace?

Correct AnswerverifiedShow Answer

Taking action to reveal one's own private information is called:

Correct AnswerverifiedShow Answer

A well-known brand name associated with high quality:

Correct AnswerverifiedD

Which of the following is one way employers can minimize moral hazard?

Correct AnswerverifiedShow Answer

Statistical discrimination is sometimes:

Correct AnswerverifiedShow Answer

The government requires that every driver have some form of car insurance to address the problem of:

Correct AnswerverifiedShow Answer

Filling gaps in your information by generalizing based on observable characteristics is called:

Correct AnswerverifiedShow Answer

Disclosure laws:

Correct AnswerverifiedShow Answer

User reviews of a product on the manufacturer's website reassure buyers of the product's quality. This is an example of:

Correct AnswerverifiedShow Answer

Job candidates will seek to provide potential employers with _____ while avoiding _____.

Correct AnswerverifiedShow Answer

Adverse selection is a problem that arises _____ the parties have entered into an agreement.

Correct AnswerverifiedShow Answer

Which of the following is a classic example of adverse selection?

Correct AnswerverifiedC

In order for a college degree to be effective as a signal of worker productivity:

Correct AnswerverifiedShow Answer

Adverse selection:

Correct AnswerverifiedShow Answer

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C

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Individuals with an expensive pre-existing condition are more likely to purchase health insurance, which exemplifies _. Individuals who have health insurance visit the doctor more frequently than individuals who are uninsured, which exemplifies _.

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D

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Job candidates will seek to provide potential employers with _ while avoiding _.

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C

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