Question 1

A firm is more likely to adopt multiple brand names for the same product when the good is a nondurable.

Accepted Answer

A) True 
 B)False

Question 2

What is one reason the eBay seller reputation system is important?

Accepted Answer

A)   eBay transactions tend to be isolated, one-off transactions.
B)   eBay transactions tend to be repeat sales between the same seller and buyers.
C)   eBay transactions often involve stolen products.
D)   eBay transactions require a larger percentage than, say, Amazon transactions.E) A) and B)
F) A) and C)

Question 3

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.Ten percent (10%) of all cars are lemons.Which of the following statements is TRUE?

Accepted Answer

A)   Only lemons are sold for $1,900.
B)   Only lemons are sold for $1,000.
C)   Buyers of lemons will pay too much for their cars.
D)   Buyers of good cars will pay too much for their cars.E) A) and B)
F) B) and D)

Question 4

Signals may prevent adverse selection if

Accepted Answer

A)   sending a false signal is cheap for the agent.
B)   sending a false signal is costly for the agent.
C)   agents as rational.
D)   signals are as good as cheap talk.E) A) and B)
F) A) and C)

Question 5

If all consumers are uninformed about the quality of a product

Accepted Answer

A)   firms can increase product by selling the same product under a different name at a different price.
B)   firms will not be able to price discriminate.
C)   firms will price discriminate.
D)   firms will increase profits by charging different prices for the same product.E) A) and B)
F) All of the above

Question 6

Explain how product liability laws can reduce adverse selection.

Accepted Answer

Product liability laws force p...

Question 7

-Joe wants to achieve the highest position possible with the XYZ Co.During the interview,he tells them he is capable of performing many difficult tasks.The company feels there is a 10% chance he is lying.Given the payoff matrix in the above figure,what job level will the company offer to Joe? Why?

Accepted Answer

The expected payoff to the firm of givin...

Question 8

If consumers have limited information about price and search costs exist,then

Accepted Answer

A)   the result must be that all firms will charge the same price.
B)   the monopoly price must result.
C)   the full-information, competitive price is not an equilibrium.
D)   the difference in prices between firms will be greater than the search cost.E) None of the above
F) All of the above

Question 9

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.The percent of all cars that are lemons is θ.What value of θ is necessary for all cars to be sold?

Accepted Answer

The sellers of good cars have a reservat...

Question 10

If a person attends a public college and is not hired because the boss went to a private college,this might be an example of

Accepted Answer

A)   statistical discrimination.
B)   racial discrimination.
C)   screening.
D)   moral hazard.E) B) and D)
F) All of the above

Question 11

If a bank offers mortgages that do not require the normal 20% down payment,the bank encourages

Accepted Answer

A)   people who know they might not pay off the mortgage.
B)   people who can't afford the down payment but can pay off the mortgage.
C)   people who know that they are going to pay off the mortgage.
D)   people who know they can't pay off the mortgage but who can afford the down payment.E) None of the above
F) All of the above

Question 12

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.Forty percent (40%) of all cars are lemons.Which of the following statements is TRUE?

Accepted Answer

A)   All of the cars will be sold at $1,600.
B)   No cars will be sold.
C)   Only lemons will be sold at $1,600.
D)   Only lemons will be sold at $1,000.E) A) and D)
F) All of the above

Question 13

The Internet has made it possible to compare lots of prices without incurring a lot of cost.This

Accepted Answer

A)   has given firms added market power to price discriminate.
B)   has significantly reduced search cost and made markets more competitive.
C)   has enabled firms to charge higher prices to consumers with computers.
D)   has only affected technology markets.E) B) and D)
F) All of the above

Question 14

If the government provides universal health insurance,what screening process will the government need?

Accepted Answer

A)   It won't need a screening test.
B)   It will only give health insurance to non-smokers.
C)   It won't use screening tests but it will use statistical discrimination.
D)   It won't use screening tests but it will use signals.E) All of the above
F) A) and B)

Question 15

If a student achieves a high SAT score,this

Accepted Answer

A)   sends a signal to a college that the applicant will be a good college student.
B)   does not act as a screening device.
C)   is a moral hazard.
D)   provides a college with no information.E) B) and D)
F) A) and D)

Question 16

Government mandated safety standards within firms

Accepted Answer

A)   will always decrease efficiency.
B)   can increase efficiency by avoiding a prisoner's dilemma outcome.
C)   are unnecessary because of asymmetric information.
D)   will create unfair competition among firms.E) A) and B)
F) C) and D)

Question 17

The number of brands of identical products will most likely increase as

Accepted Answer

A)   the number of informed consumers increases.
B)   the cost of producing many brands decreases.
C)   the number of uninformed consumers decreases.
D)   None of the above.E) A) and B)
F) A) and C)

Question 18

If bad drivers can usually avoid being ticketed by the police,then insurance companies will

Accepted Answer

A)   use one's driving record as a signal.
B)   use one's driving record as a screening device.
C)   not be able to use one's driving record as a screening device.
D)   request driving records directly from the police and not from the individual applicant.E) A) and B)
F) A) and D)

Question 19

A necessary condition for a separating equilibrium when workers can use education as a signal of their ability is

Accepted Answer

A)   the high-ability wage is larger than the sum of the degree cost plus the low-ability wage.
B)   the cost of a degree is larger than the low-skill wage.
C)   the high-ability wage is smaller than the low-ability wage.
D)   the high-skill wage is equal to the cost of a degree.E) None of the above
F) All of the above

Question 20

Why would a firm rather a company like J.D.Power (which provides product satisfaction reviews) review its product than doing it within the firm?

Accepted Answer

A)   J.D. Power provides less credibility.
B)   J.D. Power provides greater credibility.
C)   J.D. Power is more honest than the average firm.
D)   J.D. Power has a government monopoly in providing product satisfaction reviews.E) B) and D)
F) B) and C)

Exam 19: Asymmetric Information

If all consumers are uninformed about the quality of a product

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If bad drivers can usually avoid being ticketed by the police,then insurance companies will

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-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.Forty percent (40%) of all cars are lemons.Which of the following statements is TRUE?

Correct AnswerverifiedShow Answer

If a student achieves a high SAT score,this

Correct AnswerverifiedShow Answer

The Internet has made it possible to compare lots of prices without incurring a lot of cost.This

Correct AnswerverifiedShow Answer

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.Ten percent (10%) of all cars are lemons.Which of the following statements is TRUE?

Correct AnswerverifiedShow Answer

What is one reason the eBay seller reputation system is important?

Correct AnswerverifiedShow Answer

A firm is more likely to adopt multiple brand names for the same product when the good is a nondurable.

Correct AnswerverifiedShow Answer

If a person attends a public college and is not hired because the boss went to a private college,this might be an example of

Correct AnswerverifiedShow Answer

If a bank offers mortgages that do not require the normal 20% down payment,the bank encourages

Correct AnswerverifiedShow Answer

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.The percent of all cars that are lemons is θ.What value of θ is necessary for all cars to be sold?

Correct AnswerverifiedThe sellers of good cars have a reservat...View AnswerShow Answer

The number of brands of identical products will most likely increase as

Correct AnswerverifiedShow Answer

Explain how product liability laws can reduce adverse selection.

Correct AnswerverifiedProduct liability laws force p...View AnswerShow Answer

Why would a firm rather a company like J.D.Power (which provides product satisfaction reviews) review its product than doing it within the firm?

Correct AnswerverifiedShow Answer

Government mandated safety standards within firms

Correct AnswerverifiedShow Answer

A necessary condition for a separating equilibrium when workers can use education as a signal of their ability is

Correct AnswerverifiedShow Answer

Signals may prevent adverse selection if

Correct AnswerverifiedShow Answer

If consumers have limited information about price and search costs exist,then

Correct AnswerverifiedShow Answer

If the government provides universal health insurance,what screening process will the government need?

Correct AnswerverifiedShow Answer

-Joe wants to achieve the highest position possible with the XYZ Co.During the interview,he tells them he is capable of performing many difficult tasks.The company feels there is a 10% chance he is lying.Given the payoff matrix in the above figure,what job level will the company offer to Joe? Why?

Correct AnswerverifiedThe expected payoff to the firm of givin...View AnswerShow Answer

Correct Answer
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The sellers of good cars have a reservat...
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Correct Answer
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Product liability laws force p...
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Correct Answer
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The expected payoff to the firm of givin...
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