Question 1

Adverse selection arises when:

Accepted Answer

A)  the wants of both parties are aligned with one another.
B)  buyers and sellers have different information about the quality of a good or the riskiness of a situation.
C)  buyers and sellers with the same information about the quality of a good or the riskiness of a situation seek each other out.
D)  people behave in a riskier way because they have incomplete information.E) C) and D)
F) B) and D)

Question 2

User reviews of products on store websites are an example of:

Accepted Answer

A)  signaling.
B)  building a reputation.
C)  a solution to information asymmetry.
D)  All of these statements are true.E) None of the above
F) B) and C)

Question 3

If the cost of acquiring more information outweighs the benefit of having more information about a good,then we can predict:

Accepted Answer

A)  the exchange will definitely not take place.
B)  the exchange may take place anyway.
C)  the exchange will not benefit anyone.
D)  the exchange will take place,but will be regretted in the future.E) None of the above
F) A) and C)

Question 4

Moral hazard is:

Accepted Answer

A)  the tendency for people to behave in a riskier way or to renege on contracts when they do not face the full consequences of their actions.
B)  when people engage in behavior that is considered highly desirable by the person who bears the cost of the behavior.
C)  when buyers and sellers have different information about the quality of a good or the riskiness of a situation.
D)  when buyers and sellers with the same information about the quality of a good or the riskiness of a situation agree to a somewhat shady deal.E) A) and B)
F) A) and C)

Question 5

The result of employers observing negative signals from job candidates during a job search:

Accepted Answer

A)  will likely cause the employer to choose a better candidate than without the signals.
B)  will lead to a hire based on more information than before the signals were given.
C)  will lead to a more efficient outcome.
D)  All of these statements are true.E) B) and D)
F) All of the above

Question 6

When a college graduate with a degree in art history applies for an office job in a business:

Accepted Answer

A)  they are negatively signaling that they are not interested in the job.
B)  they are positively signaling that they are hardworking,intelligent and can accomplish tasks.
C)  they will be screened out immediately due to job-skill mismatch.
D)  an employer will be confused by the signal it sends.E) A) and B)
F) All of the above

Question 7

User reviews of products on Amazon are an example of:

Accepted Answer

A)  screening.
B)  building a reputation.
C)  statistical discrimination.
D)  None of these statements is true.E) B) and D)
F) B) and C)

Question 8

People:

Accepted Answer

A)  rarely have access to complete information.
B)  always have access to complete information.
C)  never have access to complete information.
D)  often have access to complete information.E) All of the above
F) B) and C)

Question 9

Moral hazard is a problem that arises:

Accepted Answer

A)  before the parties have entered into an agreement.
B)  after the parties have voluntarily entered into an agreement.
C)  either before or after the parties have entered into an agreement.
D)  rarely in any market.E) A) and B)
F) B) and C)

Question 10

A college requesting applicants to submit their high school transcripts is an example of:

Accepted Answer

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

Question 11

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

Question 12

When parties to a deal need information:

Accepted Answer

A)  they have direct access to all of it in all transactions.
B)  they will not complete the deal without getting complete information.
C)  they sometimes seek it out in ways that are not obvious.
D)  they always make the deal blindly.E) C) and D)
F) A) and B)

Question 13

Information asymmetry is a problem when:

Accepted Answer

A)  a buyer and seller have opposing incentives.
B)  a buyer and seller have aligned incentives.
C)  a market is highly efficient.
D)  a market is highly inefficient.E) B) and C)
F) None of the above

Question 14

When information asymmetry exists in a market,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 it can ensure complete information.E) A) and D)
F) All of the above

Question 15

A motorist choosing a high-deductible plan is an example of:

Accepted Answer

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

Question 16

An employer asking potential job candidates to perform a test is an example of:

Accepted Answer

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

Question 17

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

Accepted Answer

A)  complete information.
B)  adverse selection.
C)  moral hazard.
D)  collective bargaining.E) A) and B)
F) C) and D)

Question 18

When a transaction takes place repeatedly,then one way to signal to avoid information asymmetry is:

Accepted Answer

A)  building a reputation.
B)  screening.
C)  statistical discrimination.
D)  Any of these could be true.E) A) and B)
F) C) and D)

Question 19

An approach that can be taken by someone directly involved in a transaction to solve the problems caused by information asymmetry is:

Accepted Answer

A)  screening.
B)  mandating that information be shared.
C)  proofing.
D)  racial discrimination.E) All of the above
F) C) and D)

Question 20

An employer asking for a list of references from a potential employee is an example of:

Accepted Answer

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

Exam 10: Information

Signaling is when someone takes action to:

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A college requesting applicants to submit their high school transcripts is an example of:

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An employer asking potential job candidates to perform a test is an example of:

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

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User reviews of products on store websites are an example of:

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Moral hazard is a problem that arises:

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User reviews of products on Amazon are an example of:

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The result of employers observing negative signals from job candidates during a job search:

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When parties to a deal need information:

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When a transaction takes place repeatedly,then one way to signal to avoid information asymmetry is:

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When information asymmetry exists in a market,government:

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When a college graduate with a degree in art history applies for an office job in a business:

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Adverse selection arises when:

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If the cost of acquiring more information outweighs the benefit of having more information about a good,then we can predict:

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A motorist choosing a high-deductible plan is an example of:

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An employer asking for a list of references from a potential employee is an example of:

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Moral hazard is:

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An approach that can be taken by someone directly involved in a transaction to solve the problems caused by information asymmetry is:

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People:

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Information asymmetry is a problem when:

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