Question 1

An insurance company offering both high-deductible and low-deductible plans is an example of:

Accepted Answer

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

Question 2

What method is often used when both parties want to eliminate information asymmetry?

Accepted Answer

A)   Screening.
B)   Signaling.
C)   Statistical discrimination.
D)   Moral hazard.E) All of the above
F) A) and C)

Question 3

The presence of adverse selection:

Accepted Answer

A)   reduces the efficiency of markets.
B)   increases the efficiency of markets.
C)   does not affect the efficiency of markets.
D)   makes the buyer less efficient and the seller more efficient.E) C) and D)
F) B) and C)

Question 4

One way to solve the problems caused by information asymmetry is:

Accepted Answer

A)   surfing.
B)   signaling.
C)   proofing.
D)   All of these are solutions to information asymmetry.E) A) and B)
F) C) and D)

Question 5

Imbalances in information can cause problems between:

Accepted Answer

A)   buyers and sellers.
B)   lenders and borrowers.
C)   employers and employees.
D)   All of these statements are true.E) A) and B)
F) A) and C)

Question 6

Completing a college degree signals to employers that you are:

Accepted Answer

A)   intelligent.
B)   hardworking.
C)   able to complete assignments.
D)   All of these are signals one gives with a college degree.E) A) and B)
F) B) and D)

Question 7

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

Accepted Answer

A)   Sue purchased a lottery ticket that did not win her any money.
B)   Larry moved to a new apartment but later decided it was too small for his needs.
C)   Tim bought products from a seller that knew they were defective.
D)   All of these are good examples of incomplete information.E) All of the above
F) B) and C)

Question 8

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

Accepted Answer

A)   prevented Americans from entering into mortgage contracts that they did not understand.
B)   were an example of how the government can act to solve the moral hazard problem.
C)   were so numerous and detailed that borrowers didn't read or understand the information the companies had disclosed.
D)   reduced statistical discrimination in the home mortgage market.E) A) and B)
F) None of the above

Question 9

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

Accepted Answer

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

Question 10

One reason dressing well for a job interview may not be an effective signal is

Accepted Answer

A)   people who are more serious about getting a job will make the investment in a new suit.
B)   buying a suit takes time away from studying.
C)   it is costly for a person less interested in the job to buy a new suit.
D)   a person who has successfully completed a job-training program might be unable to afford a new suit.E) A) and B)
F) B) and D)

Question 11

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

Question 12

Adverse selection occurs in the insurance market because:

Accepted Answer

A)   the seller has more information than the buyer.
B)   the buyer has more information than the seller.
C)   both the buyer and the seller have incomplete information.
D)   Any of these could be the cause of adverse selection in insurance market.E) C) and D)
F) B) and D)

Question 13

A job candidate refusing to take a drug test for a potential employer is an example of:

Accepted Answer

A)   screening.
B)   building a reputation.
C)   signaling.
D)   principles-based behavior.E) B) and C)
F) A) and D)

Question 14

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

Question 15

Risky transactions are those in which:

Accepted Answer

A)   complete information is not available.
B)   there is an balance of information between buyer and seller.
C)   one party to a transaction uses the other party's lack of information to their advantage.
D)   one party withholds information from the other party and uses that to his advantage.E) A) and D)
F) A) and C)

Question 16

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) A) and C)

Question 17

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

Question 18

Markets that are more likely to be subject to adverse selection problems are those where:

Accepted Answer

A)   information is easily available to consumers and sellers.
B)   there is an imbalance of information between buyers and sellers
C)   the goods sold in that market are highly uniform in quality.
D)   the market relies on independent certifiers of quality.E) B) and C)
F) C) and D)

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

Question 20

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 an irrational response to information asymmetry.
C)   is always a legal solution to information asymmetry.
D)   All of these statements are true.E) B) and C)
F) None of the above

Exam 10: Information

Which of the following would be an example of a transaction later regretted because it was made with incomplete 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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Statistical discrimination:

Correct AnswerverifiedShow Answer

One reason dressing well for a job interview may not be an effective signal is

Correct AnswerverifiedShow Answer

A job candidate refusing to take a drug test for a potential employer is an example of:

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The government can help solve the information asymmetry problem by:

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An insurance company offering both high-deductible and low-deductible plans is an example of:

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Adverse selection occurs in the insurance market because:

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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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Completing a college degree signals to employers that you are:

Correct AnswerverifiedShow Answer

Markets that are more likely to be subject to adverse selection problems are those where:

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

Correct AnswerverifiedShow Answer

Risky transactions are those in which:

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One way to solve the problems caused by information asymmetry is:

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

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The presence of adverse selection:

Correct AnswerverifiedShow Answer

An example of screening during the hiring process is:

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What method is often used when both parties want to eliminate information asymmetry?

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Disclosure laws:

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Imbalances in information can cause problems between:

Correct AnswerverifiedShow Answer

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