Question 1

How might a car insurance company screen drivers for risky behaviour?

Accepted Answer

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A firm would want to charge a low prem...

Question 2

The classic example of adverse selection is the market for:

Accepted Answer

A)  oranges
B)  child safety equipment
C)  used cars
D)  crime novelsE) A) and D)
F) A) and C)

Question 3

An implication of asymmetric information in the insurance market is that:

Accepted Answer

A)  people in average health may be discouraged from purchasing health insurance
B)  the price of health insurance may reflect the costs of a healthier-than-average person
C)  people with greater hidden health problems have an incentive to signal their current state of health to health insurance companies
D)  insurance companies have perfect knowledge about the health problems of those who purchase insuranceE) A) and C)
F) B) and C)

Question 4

According to the median voter theorem, majority rule will produce the outcome:

Accepted Answer

A)  least preferred by the voter exactly in the middle of a distribution
B)  that represents everyone's preferences equally
C)  most preferred by the voter at an extreme end of the distribution
D)  most preferred by the voter exactly in the middle of a distributionE) All of the above
F) C) and D)

Question 5

What is adverse selection, and how is it applied to the used car market?

Accepted Answer

.
Adverse selection is a problem that ar...

Question 6

If signalling is applied to advertising:

Accepted Answer

A)  a firm with a good product reaps a relatively small benefit from advertising
B)  firms recognise the possibility of repeated customers
C)  it is irrational for a firm with a good product to pay for the cost of the signal
D)  all firms have the same incentive to advertiseE) A) and B)
F) None of the above

Question 7

Adverse selection is a problem that arises in markets where the seller knows more about the attributes of the good being sold than the buyer does.

Accepted Answer

A) True 
 B)False

Question 8

The Condorcet paradox reinforces the notion that majority rule ensures transitive preferences for society..

Accepted Answer

A) True 
 B)False

Question 9

Gift-giving can be explained through:

Accepted Answer

A)  screening
B)  moral hazard
C)  asymmetric information and signalling
D)  none of the aboveE) None of the above
F) B) and C)

Question 10

Given asymmetric information, car insurance companies might encourage risky drivers to identify themselves by offering a high-premium policy without a deductible.

Accepted Answer

A) True 
 B)False

Question 11

Economists:

Accepted Answer

A)  have always suggested that people are rational maximisers, not satisficers
B)  use basic psychological insights in the field of behavioural economics
C)  generally argue that people do not weigh the costs and benefits of different courses of action
D)  assume individuals and firms do not face constraints in the marketE) A) and B)
F) C) and D)

Question 12

Arrow identified which of the following as desirable properties for a voting system? (i)  unanimity and transitivity
(ii)  independence of irrelevant alternatives
(iii)  a benevolent dictator

Accepted Answer

A)  (i)  only
B)  (i)  an (ii) 
C)  (i)  and (iii) 
D)  (ii)  and (iii) E) None of the above
F) C) and D)

Question 13

How do markets respond to problems of asymmetric information?

Accepted Answer

1. Signalling refers to actions taken by...

Question 14

In insurance markets, buyers with:

Accepted Answer

A)  low risk may choose to be uninsured, because the policies they are offered reflect their true characteristics
B)  low risk may choose to be insured, because the policies they are offered fail to reflect their true characteristics
C)  low risk may choose to be uninsured, because the policies they are offered fail to reflect their true characteristics
D)  high risk may choose to be insured, because the policies they are offered reflect their true characteristicsE) A) and D)
F) B) and C)

Question 15

Loss aversion means that commitment strategies that generate potential losses are more likely to change behaviour than strategies that generate the equivalent money gain.

Accepted Answer

A) True 
 B)False

Question 16

The incentive of imperfectly monitored workers to shirk can be reduced by:

Accepted Answer

A)  higher levels of monitoring and offering year-end bonuses
B)  higher levels of monitoring and lower wages
C)  lower levels of monitoring and offering year-end bonuses
D)  lower levels of monitoring and lower wagesE) A) and B)
F) A) and C)

Question 17

It is often difficult for a customer to know the quality of a 3-D television. If a television manufacturer advertises its 3-D televisions then:

Accepted Answer

A)  this is a costless action that fails to signal the 3-D television is a good product
B)  this is a costless action that succeeds in signalling that the 3-D television is a good product
C)  this is a costly action that succeeds in signalling that the 3-D television is a good product
D)  this is a costly action that fails to signal the 3-D television is a good productE) A) and D)
F) A) and C)

Question 18

Adverse selection is a problem that arises in markets where:

Accepted Answer

A)  the seller knows more about the attributes of the good being sold than the buyer does
B)  the buyer knows more about the attributes of the good being sold than the seller does
C)  only used cars are bought and sold
D)  both buyers and sellers have the same knowledge about the attributes of the goodE) A) and D)
F) All of the above

Question 19

When applied to the labour market, the adverse selection model suggests that:

Accepted Answer

A)  relatively talented workers are more likely to remain with a particular firm if the firm cuts the wages it pays
B)  firms have perfect knowledge about the ability of workers
C)  a firm may choose to pay an above-equilibrium wage to attract a better mix of workers
D)  all workers have identical abilitiesE) B) and D)
F) B) and C)

Question 20

Education and advertising are two examples of:

Accepted Answer

A)  signalling
B)  adverse selection
C)  moral hazard
D)  the Condorcet paradoxE) A) and B)
F) C) and D)

Exam 23: Frontiers of Microeconomics

Education and advertising are two examples of:

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The incentive of imperfectly monitored workers to shirk can be reduced by:

Correct AnswerverifiedShow Answer

The classic example of adverse selection is the market for:

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In insurance markets, buyers with:

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Economists:

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When applied to the labour market, the adverse selection model suggests that:

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Loss aversion means that commitment strategies that generate potential losses are more likely to change behaviour than strategies that generate the equivalent money gain.

Correct AnswerverifiedShow Answer

The Condorcet paradox reinforces the notion that majority rule ensures transitive preferences for society..

Correct AnswerverifiedShow Answer

Gift-giving can be explained through:

Correct AnswerverifiedShow Answer

Arrow identified which of the following as desirable properties for a voting system? (i) unanimity and transitivity (ii) independence of irrelevant alternatives (iii) a benevolent dictator

Correct AnswerverifiedShow Answer

Given asymmetric information, car insurance companies might encourage risky drivers to identify themselves by offering a high-premium policy without a deductible.

Correct AnswerverifiedShow Answer

According to the median voter theorem, majority rule will produce the outcome:

Correct AnswerverifiedShow Answer

An implication of asymmetric information in the insurance market is that:

Correct AnswerverifiedShow Answer

It is often difficult for a customer to know the quality of a 3-D television. If a television manufacturer advertises its 3-D televisions then:

Correct AnswerverifiedShow Answer

How do markets respond to problems of asymmetric information?

Correct Answerverified1. Signalling refers to actions taken by...View AnswerShow Answer

How might a car insurance company screen drivers for risky behaviour?

Correct Answerverified.A firm would want to charge a low prem...View AnswerShow Answer

Adverse selection is a problem that arises in markets where:

Correct AnswerverifiedShow Answer

Adverse selection is a problem that arises in markets where the seller knows more about the attributes of the good being sold than the buyer does.

Correct AnswerverifiedShow Answer

If signalling is applied to advertising:

Correct AnswerverifiedShow Answer

What is adverse selection, and how is it applied to the used car market?

Correct Answerverified.Adverse selection is a problem that ar...View AnswerShow Answer

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1. Signalling refers to actions taken by...
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A firm would want to charge a low prem...
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Adverse selection is a problem that ar...
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