Question 1

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

Accepted Answer

The gift given by the woman can be viewed by the boyfriend as a signal of how much she cares for him. It may not necessarily be a moral hazard problem or a screening device as there is no apparent hidden agenda or risk associated with the gift.

Question 2

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

Accepted Answer

The answer of Which of the following events best exemplifies...

Question 3

Effective signals

Accepted Answer

Effective signals are those that convey useful information from parties who have more information to parties who have less information. This helps to reduce information asymmetry and increase the efficiency of markets. Effective signals can impose some cost on the signaler, but if the cost is too high, then it may not be worth it to signal. Effective signaling can raise the price that buyers are willing to pay, but it should not reduce the price that sellers receive.

Question 4

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 serves as a signal to potential buyers that the sellers are willing to take extra steps to ensure the quality and condition of the home, which may increase the buyers' confidence in the purchase.

Question 5

The Latin term caveat emptor, meaning "let the buyer beware," brings to mind the problem of

Accepted Answer

The Latin term caveat emptor specifically refers to the concept of the buyer being responsible for assessing the quality and suitability of a product or service before making a purchase. This relates to the problem of adverse selection, where the buyer may not have all the information necessary to make an informed decision about the value of the product or service.

Question 6

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, while Miller Brewing Co. does not. This is evident from the information given in the passage, which states that Budweiser typically purchases several 30 second advertising spots during the Super Bowl at a very high cost, while Miller Brewing Co. typically does not advertise during the Super Bowl.

Question 7

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 signal to the buyers that Scott's painting service is of high quality. It is a way of indicating to potential buyers that they can trust Scott's company to do a good job because they are willing to back up their work with a guarantee. This is an example of signaling.

Question 8

The adverse selection problem is a likely explanation for the fact that

Accepted Answer

The adverse selection problem occurs when those who are most likely to file a claim or use a service are the ones who purchase insurance or use the service. This leads to higher costs for insurance providers or service providers, which, in turn, leads to higher prices for those who are less likely to use the service. In the case of health insurance, people in average health may be discouraged from buying health insurance by the high price, since those who are less healthy are more likely to purchase health insurance, making it more expensive for everyone else.

Question 9

The classic example of adverse selection is the

Accepted Answer

Adverse selection refers to the situation where the buyer or seller has more information than the other party, which leads to the less-informed party making a transaction that is unfavorable to them. The market for used cars is a classic example of adverse selection because the seller (i.e. the previous owner) has more information about the quality and condition of the car than the buyer. This can lead to buyers paying too much for a car that turns out to be in poor condition.

Question 10

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 it can differentiate itself from competitors, create brand awareness, and communicate the value of its product to potential customers. However, the cost of signaling may still be high for both firms, as advertising expenses can be significant. Therefore, option A is incorrect. Option C is also incorrect because even a high-quality product may not be known to potential customers without advertising or other forms of marketing. Option D is not realistic because there are always some costs associated with advertising or other forms of signaling.

Question 11

Which of the following is an example of signaling?

Accepted Answer

All options are examples of signaling. Graduates of highly-respected universities signal their education on their resumes. Magazine advertisements signal the popularity of their product by including the phrase "as seen on TV." Advertisements for universities signal their credibility by including the phrase "fully accredited."

Question 12

Severe adverse-selection problems may result in

Accepted Answer

Severe adverse-selection problems in the used car market may result in only low-quality cars being offered for sale, as sellers of high-quality cars are unwilling to sell due to the higher risk of being lumped in with the low-quality cars and receiving a lower price. This can cause a shortage of good used cars available for purchase.

Question 13

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

Accepted Answer

This situation describes adverse selection because those with hidden health problems are more likely to purchase health insurance, which means they are self-selecting into the insurance pool. This leads to a higher concentration of people with health problems in the pool, which increases the cost of providing coverage. As a result, health insurance premiums will be higher than otherwise.

Question 14

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 to the buyer that the seller believes the car is in good condition and is willing to stand behind its quality. It provides information that may not be easily observable and reduces the buyer's uncertainty about the quality of the car.

Question 15

Which of the following is an example of signaling?

Accepted Answer

Signaling involves taking an action to convey information about oneself to another party. In this case, Marcus buying chocolates and taking Chaquila to dinner signals his affection and intentions.

Question 16

Which of the following is not an example of signaling?

Accepted Answer

Screening is a process of selecting the desired individuals or entities through vetting or evaluation, whereas signaling refers to conveying information to others intentionally or unintentionally. Therefore, screening is not an example of signaling.

Question 17

When the buyer knows less than the seller about the characteristics of the good being sold, there is

Accepted Answer

An adverse selection problem arises when one party to a transaction has more information (asymmetric information) than the other party. In this case, the buyer knows less than the seller about the characteristics of the good being sold, which represents an adverse selection problem. The other answer choices refer to different types of information asymmetry problems.

Question 18

Which of the following is not an example of signaling?

Accepted Answer

The answer of Which of the following is not an...

Question 19

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

Accepted Answer

Signaling refers to actions by an informed party for the purpose of credibly revealing private information. This private information can include aspects of a person's abilities, willingness to take risks, or the quality of a product or service. By signaling this private information to others, the informed party can gain an advantage in negotiations or transactions.

Question 20

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

The label change is an example of signaling, which is when a company uses a certain quality or characteristic to convey information to customers about their product. In this case, the award-winning label signals to customers that the wine is of high quality, despite its low price. Screening and selecting both involve a company choosing specific customers or products based on certain criteria, which is not applicable to this scenario.

Quiz 22: Frontiers of Microeconomics

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

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

Effective signals

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)

The Latin term caveat emptor, meaning "let the buyer beware," brings to mind the problem of

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?

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

The adverse selection problem is a likely explanation for the fact that

The classic example of adverse selection is the

A firm with a very good product

Which of the following is an example of signaling?

Severe adverse-selection problems may result in

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

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

Which of the following is an example of signaling?

Which of the following is not an example of signaling?

When the buyer knows less than the seller about the characteristics of the good being sold, there is

Which of the following is not an example of signaling?

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