Signals may prevent adverse selection if

sending a false signal is costly for the agent

Adverse selection can occur when

one person has information not available to others

A common resource is best described as a resource where

there is a negative externality in consumption

Which of the following is an example of a hidden characteristic?

Only the owner knows about her car defects

What is one of the most important benefits of the Internet?

The Internet has reduced asymmetric information

In which of the following situations would the Coase theorem more likely to be applied?

Two neighbors: a farmer and a beekeeper

Firms under-invest in safety because

firms do not enjoy all of the benefits from investments in safety

In the automobile insurance market, adverse selection occurs when

drivers with greater risks buy a policy with no deductibles

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

the cost of producing many brands decreases

Competitive firms are able to set price above marginal cost when

the markup is less than the cost of going to another store

If the market interest rate is 5% and a bank advertises loans at 12%, the bank will receive

applications from mostly high-risk borrowers

The existence of externalities is due mainly to the fact that

property rights are poorly defined

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CU Micro Quiz 11 + miniquiz

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ერლოფფ 18.5-6, 19

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Questions 15

Answers

1
Signals may prevent adverse selection if
agents are rational
sending a false signal is cheap for the agent
sending a false signal is costly for the agent
signals are as good as cheap talk
2
Which of the following is NOT a club good?
cable television
a country club
a rock concert
a baseball bat
3
Adverse selection can occur when
all persons involved in a transaction have full information
one person has information not available to others
nobody has any information about a particular product
post-agreement incentives result in workers shirking
4
A common resource is best described as a resource where
there is a positive externality in consumption
there is a negative externality in production
there is a positive externality in production
there is a negative externality in consumption
5
Which of the following is an example of a hidden characteristic?
Bobby let his employer know about his college degree
Sally provides her driving record to the car insurance company
After purchasing life insurance, Billy joins the bomb squad
Only the owner knows about her car defects
6
What is one of the most important benefits of the Internet?
The Internet has reduced asymmetric information
The Internet has increased asymmetric information
The Internet has increased transaction costs
The Internet has increased moral hazard
7
In which of the following situations would the Coase theorem more likely to be applied?
A railroad and its adjacent land owners
Highway drivers and the dwellers of neighborhoods crossed by the highway
None of the above
Two neighbors: a farmer and a beekeeper
8
Firms under-invest in safety because
firms are risk averse
firms do not want their plants to be safe
firms are not concerned with safety
firms do not enjoy all of the benefits from investments in safety
9
In the automobile insurance market, adverse selection occurs when
drivers with greater risks buy a policy with large deductibles
drivers with greater risks buy a policy with no deductibles
insured drivers drive recklessly
uninsured drivers drive recklessly
10
The number of brands of identical products will most likely increase as
the cost of producing many brands decreases
the number of informed consumers increases
None of the above
the number of uninformed consumers decreases
11
Competitive firms are able to set price above marginal cost when
all consumers have full information
the markup is less than the cost of going to another store
the markup is greater than the cost of going to another store
consumers know what other stores are charging
12
In the case of a good that has no exclusion and no rivalry, private markets fail because
the quantity produced will exceed the social optimum
profit is driven down to zero
of free-ridership
this is a natural monopoly
13
If the market interest rate is 5% and a bank advertises loans at 12%, the bank will receive
applications from mostly high-risk borrowers
no applications
applications from mostly low-risk borrowers
a moral hazard
14
The existence of externalities is due mainly to the fact that
monopolies tend to produce too little of a good anyway
pollution is not a serious problem
the optimal level of pollution is zero
property rights are poorly defined
15
The requirement that all drivers must carry auto insurance reduces
adverse selection
the chance of auto accidents
the effectiveness of signaling
moral hazard

CU Micro Quiz 11 + miniquiz Flashcards | StudBud