Question 1

Moral hazard:

Accepted Answer

A)  always happens when adverse selection is a problem.
B)  never happens when adverse selection is a problem.
C)  can happen when adverse selection is a problem.
D)  None of these statements is true.E) A) and D)
F) None of the above

Question 2

The government can help solve the information asymmetry problem by:

Accepted Answer

A)  providing the missing information to the less-informed party.
B)  requiring the more informed party to reveal the missing information.
C)  finding ways to make the same amount of information known to both parties.
D)  All of these statements are true.E) A) and C)
F) A) and B)

Question 3

Disclosure laws:

Accepted Answer

A)  are an example of how government attempts to solve information asymmetry in markets.
B)  are an example of how government attempts to screen unethical businesses out of the marketplace.
C)  are an example of how government forces businesses to signal to consumers if they are credible.
D)  are a way businesses can build their reputation.E) A) and B)
F) None of the above

Question 4

All food bought in the United States has an ingredient list on the packaging.This is an example of:

Accepted Answer

A)  screening.
B)  signaling.
C)  requiring the more informed party to reveal missing information.
D)  building a reputation.E) B) and C)
F) A) and D)

Question 5

Generalizing using statistical discrimination is:

Accepted Answer

A)  a rational response to being on the wrong end of an information asymmetry.
B)  an irrational response and always leads to loss of surplus.
C)  a rational response,although government always steps in to prevent it.
D)  All of these statements are true.E) A) and D)
F) All of the above

Question 6

Careless drivers being more likely to buy auto insurance voluntarily is an example of:

Accepted Answer

A)  adverse selection.
B)  moral hazard.
C)  asymmetric selection.
D)  information optimization.E) A) and B)
F) C) and D)

Question 7

An important type of information asymmetry is:

Accepted Answer

A)  adverse selection.
B)  ethical constraint.
C)  advantage imbalance.
D)  information hazard.E) B) and C)
F) C) and D)

Question 8

Agreeing to take a drug test offered by a potential employer is a method of:

Accepted Answer

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

Question 9

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

Accepted Answer

A)  the market for soft drinks.
B)  the insurance market.
C)  the market for lawn mowers.
D)  the market for sunglasses.E) A) and D)
F) B) and C)

Question 10

Drivers with auto insurance being more likely to be careless is an example of:

Accepted Answer

A)  adverse selection.
B)  moral hazard.
C)  asymmetric selection.
D)  information optimization.E) None of the above
F) A) and B)

Question 11

People:

Accepted Answer

A)  often have good enough information to make acceptable choices.
B)  are sometimes truly under-informed in ways that matter.
C)  rarely have access to complete information.
D)  All of these statements are true.E) B) and C)
F) None of the above

Question 12

Certifying a used car through a brand dealership:

Accepted Answer

A)  corrects an inefficiency in the market.
B)  allows more transactions to take place that are valuable to buyers and sellers.
C)  credibly signals which cars are not lemons.
D)  All of these statements are true.E) B) and C)
F) A) and D)

Question 13

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

Accepted Answer

A)  the functioning of those markets is thought to be in the public interest.
B)  the market would not otherwise exist.
C)  the market would exist illegally.
D)  None of these statements is true.E) A) and D)
F) B) and C)

Question 14

When people are fully informed about the choices that they and other relevant economic actors face,we say they:

Accepted Answer

A)  have complete information.
B)  will always try to hide that information to gain advantage.
C)  will always be willing to go through with the transaction.
D)  have relevant information.E) B) and C)
F) A) and B)

Question 15

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

Accepted Answer

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

Question 16

Building a good reputation in the marketplace:

Accepted Answer

A)  can be a very valuable signal.
B)  can take a long time.
C)  can be costly.
D)  All of these statements are true.E) A) and D)
F) B) and C)

Question 17

Statistical discrimination:

Accepted Answer

A)  can limit the opportunities of individuals just because they happen to belong to a certain group of people.
B)  is a rational response to information asymmetry.
C)  is not always a legal solution to information asymmetry.
D)  All of these statements are true.E) C) and D)
F) B) and D)

Question 18

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

Accepted Answer

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

Question 19

An example of screening during the hiring process is:

Accepted Answer

A)  just asking for the information.
B)  an interview.
C)  checking references.
D)  All of these are ways to screen candidates.E) B) and C)
F) None of the above

Question 20

Adverse selection:

Accepted Answer

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

Exam 10: Information

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

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The government can help solve the information asymmetry problem by:

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

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Generalizing using statistical discrimination is:

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Certifying a used car through a brand dealership:

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Agreeing to take a drug test offered by a potential employer is a method of:

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Moral hazard:

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Statistical discrimination:

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Adverse selection:

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People:

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Careless drivers being more likely to buy auto insurance voluntarily is an example of:

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An example of screening during the hiring process is:

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Drivers with auto insurance being more likely to be careless is an example of:

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An important type of information asymmetry is:

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Disclosure laws:

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All food bought in the United States has an ingredient list on the packaging.This is an example of:

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

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Building a good reputation in the marketplace:

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When people are fully informed about the choices that they and other relevant economic actors face,we say they:

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

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