Question 1

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

Question 2

When the parties to a deal have access to different information:

Accepted Answer

A)   markets will be efficient.
B)   parties will voluntarily share information truthfully in order to achieve efficiency.
C)   markets may fail to exist in such cases.
D)   parties will blindly trust one another.E) C) and D)
F) A) and D)

Question 3

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

Question 4

Information asymmetry is present when:

Accepted Answer

A)   one person knows more than another.
B)   there is risk.
C)   when both parties are lacking the same information.
D)   All of these statements are true.E) B) and C)
F) None of the above

Question 5

User reviews of products on store websites that reassure buyers of the quality is an example of:

Accepted Answer

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

Question 6

Information asymmetry is not a problem when:

Accepted Answer

A)   the wants of both parties are aligned with one another.
B)   the wants of both parties are opposed to one another.
C)   the constraints of both parties are identical.
D)   both parties lack the same information.E) A) and C)
F) None of the above

Question 7

User-feedback scores on eBay are an example of:

Accepted Answer

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

Question 8

Building a good reputation in the marketplace:

Accepted Answer

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

Question 9

Requiring that applicants get drug tested is an example of:

Accepted Answer

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

Question 10

The principal-agent problem:

Accepted Answer

A)   is when the principal has more information than the agent.
B)   is when the agent is tempted to put in more effort than the principal would like.
C)   is commonly seen in the employer-employee relationship.
D)   is when the principal and agent have the same objectives.E) A) and B)
F) All of the above

Question 11

Generalizing using statistical discrimination is:

Accepted Answer

A)   an irrational response and always leads to loss of surplus.
B)   a rational response to being on the wrong end of an information asymmetry.
C)   a rational response, although government always steps in to prevent it.
D)   All of these statements are true.E) None of the above
F) All of the above

Question 12

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

Accepted Answer

A)   help to reduce the cost of health care.
B)   overcome adverse selection in the market for health insurance.
C)   keep premiums lower than if healthy people could opt out.
D)   All of these statements are true.E) C) and D)
F) A) and C)

Question 13

Asymmetric information in a transaction can result in:

Accepted Answer

A)   moral hazard.
B)   adverse selection.
C)   a lemons problem.
D)   All of these statements are true.E) A) and D)
F) A) and C)

Question 14

Some people make purchases without complete information because:

Accepted Answer

A)   they are irrational.
B)   the opportunity cost of getting more information outweighs the benefit of having more information.
C)   the benefit of having more information outweighs the opportunity cost of acquiring it.
D)   No one makes purchases without complete information.E) A) and D)
F) C) and D)

Question 15

Which of the following is a case of asymmetric information:

Accepted Answer

A)   The buyer and seller of a used car donâ€™t know how long the car will operate.
B)   A provider of health insurance does not know whether a specific client is a smoker or not.
C)   Neither you nor the insurance company has perfect information about whether a flood will occur.
D)   None of the above are examples of asymmetric information.E) B) and C)
F) A) and D)

Question 16

When you are faced with a lack of information concerning a purchase,you should:

Accepted Answer

A)   consider the opportunity cost of gaining more information.
B)   always seek out the most information you can before making a purchase.
C)   not make the purchase without complete information.
D)   None of these statements is true.E) B) and C)
F) A) and B)

Question 17

Taking action to reveal private information about someone else is called:

Accepted Answer

A)   screening.
B)   signaling.
C)   discriminating.
D)   illegal.E) A) and D)
F) A) and C)

Question 18

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 principal being unable to perfectly observe the actions of the agent.
D)   All of these statements are true.E) C) and D)
F) A) 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)   statistical discrimination.
B)   mandating that information be shared.
C)   proofing.
D)   All of these are ways to solve information asymmetry.E) A) and C)
F) C) and D)

Question 20

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

Exam 10: Information

Taking action to reveal private information about someone else is called:

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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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Moral hazard is a problem that arises:

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Building a good reputation in the marketplace:

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User reviews of products on store websites that reassure buyers of the quality is an example of:

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When the parties to a deal have access to different information:

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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:

Correct AnswerverifiedShow Answer

When you are faced with a lack of information concerning a purchase,you should:

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Generalizing using statistical discrimination is:

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User-feedback scores on eBay are an example of:

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

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Information asymmetry is not a problem when:

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The principal-agent problem:

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The principal-agent problem:

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Some people make purchases without complete information because:

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Information asymmetry is present when:

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An example of statistical discrimination would be:

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Asymmetric information in a transaction can result in:

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Which of the following is a case of asymmetric information:

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Requiring that applicants get drug tested is an example of:

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