Question 1

A woman gives her boyfriend a birthday present. The gift could be viewed by the boyfriend as a

Accepted Answer

The act of giving a birthday present serves as a signal of how much the woman cares for her boyfriend. While the other options (moral hazard problem and screening device) may be relevant in other situations, they do not apply to the act of giving a birthday present.

Question 2

A home has been on the market for an extended amount of time without much interest from buyers. The sellers decide to purchase and include a home warranty insuring against major defects with the home. The warranty is an example of a(n)

Accepted Answer

The home warranty is a signal to potential buyers that the sellers are confident in the condition of the home and are willing to back it up with a warranty. This may increase the attractiveness of the home and generate more interest from buyers.

Question 3

Which of the following is an example of screening?

Accepted Answer

Screening involves actions taken by the less informed party to gather information about the more informed party. Offering a policy with a high deductible is a way for an insurance company to screen for low-risk individuals who are willing to take on more risk themselves.

Question 4

Which of the following events best exemplifies the concept of signaling?

Accepted Answer

Sending free bikes to reviewers is a form of signaling, as it demonstrates the company's confidence in the quality of their product to influential reviewers, hoping to gain positive reviews and attract customers.

Question 5

Which of the following is an example of signaling?

Accepted Answer

Buying Chaquila chocolates and taking her to dinner at her favorite restaurant are examples of signaling, as they are actions taken by Marcus to communicate his love and commitment to her before proposing marriage. Options A, B, and C are not examples of signaling as they are requirements or precautions taken by third parties (auto mechanic, doctor, firm) before taking an action (buying car, writing policy, hiring).

Question 6

If the seller of a used car offers a limited warranty, the warranty is an example of a(n)

Accepted Answer

A warranty is a signal of quality from the seller to the buyer, indicating that the seller has confidence in the product and is willing to stand behind it for a certain period of time.

Question 7

Which of the following is not an example of signaling?

Accepted Answer

Signaling involves conveying information indirectly through actions or attributes. Calling references is a direct method of obtaining information, not signaling.

Question 8

Budweiser typically purchases several 30 second advertising spots during the Super Bowl at a very high cost. Miller Brewing Co. typically does not advertise during the Super Bowl. Which of the following is correct?

Accepted Answer

Budweiser chooses to signal during the Super Bowl, which implies that they want to make a statement or communicate their brand message to the large audience watching the game. On the other hand, Miller Brewing Co. chooses not to advertise during the Super Bowl, which may suggest that they have other ways of promoting their brand or do not see the value in investing in such expensive advertising spots.

Question 9

Severe adverse-selection problems may result in

Accepted Answer

Severe adverse-selection problems in the market for used cars can lead to too few good used cars being offered for sale. This is because buyers are unable to distinguish between good and bad cars, and sellers of good cars are unwilling to sell at the same price as sellers of bad cars, since they would be unable to recover the cost of maintaining their vehicle. As a result, there is a shortage of good quality used cars in the market.

Question 10

Screening occurs when

Accepted Answer

Screening occurs when an uninformed party acts to induce the informed party to reveal private information. In other words, the uninformed party is trying to screen or gather more information about the informed party by encouraging them to disclose private information.

Question 11

Which of the following is not an example of signaling?

Accepted Answer

Screening is not an example of signaling. Screening refers to the process of evaluating or filtering individuals or things based on certain criteria, while signaling refers to the use of certain actions, attributes or signals to convey information about oneself. The other three options are examples of signaling: advertising is a way for firms to signal their quality or brand; getting an education signals one's ability and competence; and gift giving can signal social status or affection.

Question 12

A brand of wine is priced at only $5 per bottle, far below the market price of most high quality wines. Before any reputation exists for the wine, consumers buy very little of this inexpensive wine because they interpret the low price to mean that the wine is of poor quality. The company decides to change the label on the wine to show that it has won awards for quality. This label change is an example of

Accepted Answer

This label change is an example of signaling, as the company is attempting to convey information about the quality of their wine to potential consumers, in order to combat the negative perception associated with the low price. Screening and selecting involve the process of choosing between potential customers or products, and do not apply in this scenario.

Question 13

A life insurance company requires new applicants to have a medical exam prior to writing the insurance policy. This requirement is an example of

Accepted Answer

The requirement of a medical exam prior to writing the insurance policy is an example of screening. The life insurance company is trying to screen out applicants who may be at a higher risk of death or illness, as they would be more costly for the company to insure. A medical exam can reveal underlying health conditions that could affect the applicant's mortality risk, allowing the company to adjust their premiums or deny coverage if the risk is too high.

Question 14

Scott's Painting Company paints houses. Since Scott's business does not have the name recognition of some of the bigger painting companies, Scott advertises a "Five-Year Money Back Guarantee" to indicate to buyers that his service is of high quality. This guarantee is an example of

Accepted Answer

The "Five-Year Money Back Guarantee" is a signaling mechanism used by Scott's Painting Company to indicate high quality service to potential buyers.

Question 15

Which of the following is an example of signaling?

Accepted Answer

All of the choices are examples of signaling.

Choice A, graduates of highly-respected universities highlighting that fact on their resumes, is a way of signaling their education and the reputation of the university they attended.

Choice B, magazine advertisements including the phrase "as seen on TV," is a way of signaling to consumers that the product or service being advertised has gained recognition or approval through media exposure.

Choice C, advertisements for universities including the phrase "fully accredited," is a way of signaling to potential students and parents that the university has met certain academic standards and has been recognized by an accrediting organization.

Question 16

Effective signals

Accepted Answer

Effective signals are those that convey useful information from informed parties to uninformed parties. This helps to reduce information asymmetry and improve the efficiency of the market. Signals that do not convey useful information, or that are costly to the signaler, are less effective in achieving these goals. Effective signals can lead to higher quantity sold and higher prices for sellers, as buyers are willing to pay more for goods or services that they perceive to be of high quality.

Question 17

People with hidden health problems are more likely to buy health insurance than are other people. This is an example of

Accepted Answer

This is an example of adverse selection, where individuals with hidden health problems (who are more likely to use insurance) are more likely to choose health insurance, leading to a higher cost of health insurance for everyone. Moral hazard, on the other hand, refers to the tendency for individuals to engage in riskier behavior when they have insurance, which is not applicable to this scenario.

Question 18

"Signaling" refers to actions by an informed party for the sole purpose of

Accepted Answer

Signaling refers to a situation in which an informed party conveys certain information to an uninformed party in a way that is credible and can be relied upon. The purpose of signaling is to reduce the information asymmetry between the two parties, and in the case of D, the private information being revealed is credible and can be trusted.

Question 19

Which of the following is an example of screening?

Accepted Answer

Screening refers to the process of evaluating and selecting potential options based on certain criteria. Checking a loan applicant's credit history is an example of screening because it involves evaluating their financial history to determine their eligibility for a loan. Options B and C are not examples of screening because they do not involve the evaluation of certain criteria to make a decision; rather, they are simply examples of situations where one party may have more information than another.

Question 20

A firm with a very good product

Accepted Answer

A firm with a very good product has more to gain by signaling (advertising) than does a firm with an inferior product because the quality of the product is a competitive advantage that needs to be communicated to potential customers to generate demand and gain market share. The cost of signaling may be higher due to the need for more sophisticated and expensive advertising campaigns, but the benefits in terms of increased sales and brand recognition justify the investment.

Quiz 22: Frontiers in Microeconomics

A woman gives her boyfriend a birthday present. The gift could be viewed by the boyfriend as a

A home has been on the market for an extended amount of time without much interest from buyers. The sellers decide to purchase and include a home warranty insuring against major defects with the home. The warranty is an example of a(n)

Which of the following is an example of screening?

Which of the following events best exemplifies the concept of signaling?

Which of the following is an example of signaling?

If the seller of a used car offers a limited warranty, the warranty is an example of a(n)

Which of the following is not an example of signaling?

Budweiser typically purchases several 30 second advertising spots during the Super Bowl at a very high cost. Miller Brewing Co. typically does not advertise during the Super Bowl. Which of the following is correct?

Severe adverse-selection problems may result in

Screening occurs when

Which of the following is not an example of signaling?

A life insurance company requires new applicants to have a medical exam prior to writing the insurance policy. This requirement is an example of

Scott's Painting Company paints houses. Since Scott's business does not have the name recognition of some of the bigger painting companies, Scott advertises a "Five-Year Money Back Guarantee" to indicate to buyers that his service is of high quality. This guarantee is an example of

Which of the following is an example of signaling?

Effective signals

People with hidden health problems are more likely to buy health insurance than are other people. This is an example of

"Signaling" refers to actions by an informed party for the sole purpose of

Which of the following is an example of screening?

A firm with a very good product