Question 1

In the principal-agent problem,the agent is:

Accepted Answer

A)  a person who entrusts someone with a task.
B)  a person who carries out a task on someone else's behalf.
C)  a person who is in charge of a top-secret mission.
D)  a person who is the source of the problem.E) A) and C)
F) B) and C)

Question 2

Problems are likely to arise when:

Accepted Answer

A)  one person knows more than another.
B)  complete information is impossible to obtain.
C)  people have good enough information to make acceptable choices.
D)  None of these statements is true.E) A) and B)
F) C) and D)

Question 3

The classic example used to discuss the problem of adverse selection is:

Accepted Answer

A)  the lemons problem.
B)  the market for used cars.
C)  the imbalance of information that exists between a buyer and seller of a used car.
D)  All of these statements are true.E) All of the above
F) C) and D)

Question 4

A way in which government can attempt to solve the problems caused by information asymmetry in the marketplace is:

Accepted Answer

A)  statistical discrimination.
B)  signaling.
C)  mandating that information be shared.
D)  All of these are ways the government deals with information asymmetry.E) None of the above
F) B) and D)

Question 5

An example of a way employers can minimize moral hazard is:

Accepted Answer

A)  monitor employees' computer activity.
B)  offer bonuses for consistent productivity.
C)  videotape the workplace.
D)  All of these are ways to minimize moral hazard.E) A) and D)
F) A) and C)

Question 6

Moral hazard:

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 B)
F) A) and C)

Question 7

Both screening and signaling:

Accepted Answer

A)  are ways to decrease information asymmetry between two parties.
B)  correct inefficiency in the market.
C)  can increase surplus gained in a market.
D)  All of these statements are true.E) All of the above
F) None of the above

Question 8

The result of effective screening and signaling can be:

Accepted Answer

A)  more transactions take place.
B)  surplus is increased for buyer and/or seller.
C)  more information is credibly shared.
D)  All of these statements are true.E) A) and D)
F) A) and B)

Question 9

Showing up to a job interview and not knowing any information about the company it's with is an example of a:

Accepted Answer

A)  positive signal.
B)  negative signal.
C)  positive screen.
D)  negative screen.E) All of the above
F) A) and D)

Question 10

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

Question 11

In the principal-agent problem,the principal is:

Accepted Answer

A)  a person who entrusts someone with a task.
B)  a person who carries out a task on someone else's behalf.
C)  a person who is in charge of an educational system.
D)  a person who is the source of the problem.E) B) and C)
F) A) and B)

Question 12

It is possible to have:

Accepted Answer

A)  moral hazard without adverse selection present in a market.
B)  adverse selection present in a market without moral hazard.
C)  both moral hazard and adverse selection present in a market.
D)  All of these statements are true.E) A) and D)
F) B) and D)

Question 13

A motorist who chooses high-deductible versus low-deductible car insurance is:

Accepted Answer

A)  signaling they are a safe driver.
B)  signaling they are a reckless driver.
C)  signaling they are likely low income earners.
D)  signaling they are likely to not pay.E) A) and D)
F) A) and C)

Question 14

When a lack of information exists for parties to a deal:

Accepted Answer

A)  it is always worth getting more information before making a decision.
B)  the cost of acquiring information sometimes is prohibitive and not worth it.
C)  an exchange will never happen.
D)  the exchange will always happen anyway,with little chance of maximizing surplus.E) None of the above
F) C) and D)

Question 15

Adverse selection occurs in the used car 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 the used car market.E) None of the above
F) A) and B)

Question 16

A typical reason moral hazard exists in the workplace is:

Accepted Answer

A)  employees do not directly benefit from their effort,only their time spent at work.
B)  employees get paid the same,whether they try really hard or not.
C)  employees have no incentive to let the employer know how hard they can really work,because that might be expected of them all the time.
D)  All of these statements are true.E) B) and C)
F) All of the above

Question 17

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) A) and D)

Question 18

One of the reasons the student loan repayment plan at Yale did not work was because:

Accepted Answer

A)  complete information was given to both the students and the University.
B)  there was an adverse selection of students into the program.
C)  the moral hazard of students made them take riskier jobs.
D)  the collective bargaining with the students reached an impasse.E) None of the above
F) C) and D)

Question 19

A consequence of adverse selection is:

Accepted Answer

A)  buyers gain surplus they would have lost with complete information.
B)  sellers gain surplus they would have lost with complete information.
C)  transactions do not take place that would have been possible if the parties had the same information.
D)  All of these statements are true.E) A) and B)
F) B) and C)

Question 20

When information asymmetry is present:

Accepted Answer

A)  one person knows more than another.
B)  one person is likely to use the information imbalance to his advantage.
C)  it can create inefficient markets.
D)  All of these statements are true.E) All of the above
F) A) and D)

Exam 10: Information

In the principal-agent problem,the principal is:

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A way in which government can attempt to solve the problems caused by information asymmetry in the marketplace is:

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Both screening and signaling:

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The classic example used to discuss the problem of adverse selection is:

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When a lack of information exists for parties to a deal:

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A motorist who chooses high-deductible versus low-deductible car insurance is:

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An example of a way employers can minimize moral hazard is:

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It is possible to have:

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One of the reasons the student loan repayment plan at Yale did not work was because:

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In the principal-agent problem,the agent is:

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Adverse selection occurs in the used car market because:

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Problems are likely to arise when:

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The result of effective screening and signaling can be:

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Imbalances in information can cause problems between:

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When information asymmetry is present:

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Showing up to a job interview and not knowing any information about the company it's with is an example of a:

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A consequence of adverse selection is:

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Moral hazard:

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

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A typical reason moral hazard exists in the workplace is:

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