Deck 36: A: Asymmetric Information

Question 1

Suppose that in New Crankshaft, Pennsylvania, the quality distribution of the 2,000 used cars on the market is such that the number of used cars of value less than V is . Original owners must sell their used cars. Original owners know what their cars are worth, but buyers can't determine a car's value until they buy it. An owner can either take his car to an appraiser and pay the appraiser $500 to appraise the car (accurately and credibly) or sell the car unappraised. In equilibrium, car owners will have their cars appraised if and only if their value is at least

A) $1,500.
B) $1,000.
C) $500.
D) $1,000.
E) $2,000.

Answer 1

D

Question 2

In Rustbucket, Michigan, there are 200 used cars for sale, half of them are good and half of them are lemons. Owners of lemons are willing to sell them for $100. Owners of good used cars are willing to sell them for prices above $1,100 but will keep them if the price is lower than $1,100. There is a large number of potential buyers who are willing to pay $200 for a lemon and $2,100 for a good car. Buyers can't tell good cars from bad, but original owners know.

A) There will be an equilibrium in which lemons sell for $100 and good used cars sell for $1,100.
B) There will be an equilibrium in which all used cars sell for $600.
C) The only equilibrium is one in which all used cars on the market are lemons and they sell for $200.
D) There will be an equilibrium in which all used cars sell for $1,150.
E) There will be an equilibrium in which lemons sell for $200 and good used cars sell for $2,100.

Answer 2

D

Question 3

Suppose that in Enigma, Ohio, klutzes have a productivity of $1,000 and kandos have a productivity of $5,000 per month. You can't tell klutzes from kandos by looking at them or asking them, and it is too expensive to monitor individual productivity. Kandos, however, have more patience than klutzes. Listening to an hour of dull lectures is as bad as losing $300 for a klutz and $150 for a kando. There will be a separating equilibrium in which anybody who attends a course of H hours of lectures is paid $5,000 per month and anybody who does not is paid $1,000 per month

A) if 13.33 < H < 53.33.
B) only in the limit as H approaches infinity.
C) if 13.33 < H < 26.67.
D) for all positive values of H.
E) if 11.67 < H < 23.33.

Answer 3

C

Question 4

Suppose that in New Crankshaft, Pennsylvania, the quality distribution of the 3,000 used cars on the market is such that the number of used cars of value less than V is . Original owners must sell their used cars. Original owners know what their cars are worth, but buyers can't determine a car's value until they buy it. An owner can either take his car to an appraiser and pay the appraiser $100 to appraise the car (accurately and credibly) or sell the car unappraised. In equilibrium, car owners will have their cars appraised if and only if their value is at least

A) $200.
B) $300.
C) $1,500.
D) $100.
E) $400.

Question 5

In Rustbucket, Michigan, there are 200 used cars for sale, half of them are good and half of them are lemons. Owners of lemons are willing pay $200 for a lemon and $2,300 for a good car. Buyers can't tell good cars from bad, but original owners know.

A) There will be an equilibrium in which all used cars sell for $1,250.
B) There will be an equilibrium in which all used cars sell for $700.
C) The only equilibrium is one in which all used cars on the market are lemons and they sell for $200.
D) There will be an equilibrium in which lemons sell for $100 and good used cars sell for $1,300.
E) There will be an equilibrium in which lemons sell for $200 and good used cars sell for $2,300.

Question 6

Suppose that low-productivity workers all have marginal products of 10 and high-productivity workers all have marginal products of 16. The community has equal numbers of each type of worker. The local community college offers a course in microeconomics. High-productivity workers think taking this course is as bad as a wage cut of $2, and low-productivity workers think it is as bad as a wage cut of $4.

A) There is a separating equilibrium in which high-productivity workers take the course and are paid $18 and low-productivity workers do not take the course and are paid $10.
B) There is a separating equilibrium in which high-productivity workers take the course and are paid $16 and low-productivity workers do not take the course and are paid $10.
C) There is no separating equilibrium and no pooling equilibrium.
D) There is no separating equilibrium, but there is a pooling equilibrium in which everybody is paid $13.
E) There is a separating equilibrium in which high-productivity workers take the course and are paid $16 and low-productivity workers are paid $13.

Question 7

Suppose that low-productivity workers all have marginal products of 10 and high-productivity workers all have marginal products of 15. The community has equal numbers of each type of worker. The local community college offers a course in microeconomics. High-productivity workers think taking this course is as bad as a wage cut of $2, and low-productivity workers think it is as bad as a wage cut of $4.

A) There is a separating equilibrium in which high- productivity workers take the course and are paid $15 and low-productivity workers do not take the course and are paid $10.
B) There is no separating equilibrium and no pooling equilibrium.
C) There is no separating equilibrium, but there is a pooling equilibrium in which everybody is paid $12.50.
D) There is a separating equilibrium in which high-productivity workers take the course and are paid $17 and low-productivity workers do not take the course and are paid $10.
E) There is a separating equilibrium in which high-productivity workers take the course and are paid $15 and low-productivity workers are paid $12.50.

Question 8

In Rustbucket, Michigan, there are 200 used cars for sale, half of them are good and half of them are lemons. Owners of lemons are willing to sell them for $500. Owners of good used cars are willing to sell them for prices above $900 but will keep them if the price is lower than $900. There is a large number of potential buyers who are willing to pay $700 for a lemon and $1,900 for a good car. Buyers can't tell good cars from bad, but original owners know.

A) There will be an equilibrium in which all used cars sell for $1,300.
B) The only equilibrium is one in which all used cars on the market are lemons and they sell for $700.
C) There will be an equilibrium in which lemons sell for $500 and good used cars sell for $900.
D) There will be an equilibrium in which all used cars sell for $700.
E) There will be an equilibrium in which lemons sell for $700 and good used cars sell for $1,900.

Question 9

Suppose that in New Crankshaft, Pennsylvania, the quality distribution of the 8,000 used cars on the market is such that the number of used cars of value less than V is . Original owners must sell their used cars. Original owners know what their cars are worth, but buyers can't determine a car's value until they buy it. An owner can either take his car to an appraiser and pay the appraiser $300 to appraise the car (accurately and credibly) or sell the car unappraised. In equilibrium, car owners will have their cars appraised if and only if their value is at least

A) $300.
B) $600.
C) $4,000.
D) $900.
E) $1,200.

Question 10

Suppose that in Enigma, Ohio, klutzes have a productivity of $1,000 and kandos have a productivity of $4,000 per month. You can't tell klutzes from kandos by looking at them or asking them, and it is too expensive to monitor individual productivity. Kandos, however, have more patience than klutzes. Listening to an hour of dull lectures is as bad losing $200 for a klutz and $150 for a kando. There will be a separating equilibrium in which anybody who attends a course of H hours of lectures is paid $4,000 per month and anybody who does not is paid $1,000 per month

A) if 15 < H < 20.
B) if 15 < H < 40.
C) for all positive values of H.
D) only in the limit as H approaches infinity.
E) if 12.50 < H < 16.67.

Question 11

Suppose that in Enigma, Ohio, klutzes have a productivity of $1,000 and kandos have a productivity of $5,000 per month. You can't tell klutzes from kandos by looking at them or asking them, and it is too expensive to monitor individual productivity. Kandos, however, have more patience than klutzes. Listening to an hour of dull lectures is as bad as losing $150 for a klutz and $50 for a kando. There will be a separating equilibrium in which anybody who attends a course of H hours of lectures is paid $5,000 per month and anybody who does not is paid $1,000 per month

A) if 26.67 < H < 80.
B) if 26.67 < H < 160.
C) only in the limit as H approaches infinity.
D) for all positive values of H.
E) if 23.33 < H < 70.

Question 12

Suppose that in Enigma, Ohio, klutzes have a productivity of $1,000 and kandos have a productivity of $4,000 per month. You can't tell klutzes from kandos by looking at them or asking them, and it is too expensive to monitor individual productivity. Kandos, however, have more patience than klutzes. Listening to an hour of dull lectures is as bad as losing $150 for a klutz and $50 for a kando. There will be a separating equilibrium in which anybody who attends a course of H hours of lectures is paid $4,000 per month and anybody who does not is paid $1,000 per month

A) if 20 < H < 60.
B) if 20 < H < 120.
C) only in the limit as H approaches infinity.
D) for all positive values of H.
E) if 16.67 < H < 50.

Question 13

Suppose that low-productivity workers all have marginal products of 10 and high-productivity workers all have marginal products of 16. The community has equal numbers of each type of worker. The local community college offers a course in microeconomics. High-productivity workers think taking this course is as bad as a wage cut of $2, and low-productivity workers think it is as bad as a wage cut of $6.

A) There is no separating equilibrium, but there is a pooling equilibrium in which everybody is paid $13.
B) There is a separating equilibrium in which high-productivity workers take the course and are paid $18 and low-productivity workers do not take the course and are paid $10.
C) There is no separating equilibrium and no pooling equilibrium.
D) There is a separating equilibrium in which high-productivity workers take the course and are paid $16 and low-productivity workers do not take the course and are paid $10.
E) There is a separating equilibrium in which high-productivity workers take the course and are paid $16 and low productivity workers are paid $13.

Question 14

Suppose that in New Crankshaft, Pennsylvania, the quality distribution of the 4,000 used cars on the market is such that the number of used cars of value less than V is . Original owners must sell their used cars. Original owners know what their cars are worth, but buyers can't determine a car's value until they buy it. An owner can either take his car to an appraiser and pay the appraiser $400 to appraise the car (accurately and credibly) or sell the car unappraised. In equilibrium, car owners will have their cars appraised if and only if their value is at least

A) $400.
B) $2,000.
C) $1,200.
D) $800.
E) $1,600.

Question 15

In Rustbucket, Michigan, there are 200 used cars for sale, half of them are good and half of them are lemons. Owners of lemons are willing to sell them for $300. Owners of good used cars are willing to sell them for prices above $1,300 but will keep them if the price is lower than $1,300. There is a large number of potential buyers who are willing to pay $600 for a lemon and $2,100 for a good car. Buyers can't tell good cars from bad, but original owners know.

A) There will be an equilibrium in which all used cars sell for $800.
B) There will be an equilibrium in which lemons sell for $300 and good used cars sell for $1,300.
C) There will be an equilibrium in which all used cars sell for $1,350.
D) The only equilibrium is one in which all used cars on the market are lemons and they sell for $600.
E) There will be an equilibrium in which lemons sell for $600 and good used cars sell for $2,100.

Question 16

Suppose that low-productivity workers all have marginal products of 10 and high-productivity workers all have marginal products of 16. The community has equal numbers of each type of worker. The local community college offers a course in microeconomics. High-productivity workers think taking this course is as bad as a wage cut of $3, and low-productivity workers think it is as bad as a wage cut of $5.

A) There is a separating equilibrium in which high-productivity workers take the course and are paid $19 and low-productivity workers do not take the course and are paid $10.
B) There is no separating equilibrium and no pooling equilibrium.
C) There is a separating equilibrium in which high-productivity workers take the course and are paid $16 and low-productivity workers do not take the course and are paid $10.
D) There is no separating equilibrium, but there is a pooling equilibrium in which everybody is paid $13.
E) There is a separating equilibrium in which high-productivity workers take the course and are paid $16 and low-productivity workers are paid $13.

Question 17

Suppose that in Enigma, Ohio, klutzes have a productivity of $1,000 and kandos have a productivity of $4,000 per month. You can't tell klutzes from kandos by looking at them or asking them, and it is too expensive to monitor individual productivity. Kandos, however, have more patience than klutzes. Listening to an hour of dull lectures is as bad as losing $300 for a klutz and $150 for a kando. There will be a separating equilibrium in which anybody who attends a course of H hours of lectures is paid $4,000 per month and anybody who does not is paid $1,000 per month

A) for all positive values of H.
B) if 10 < H < 40.
C) if 10 < H < 20.
D) only in the limit as H approaches infinity.
E) if 8.33 < H < 16.67.

Question 18

Suppose that in New Crankshaft, Pennsylvania, the quality distribution of the 5,000 used cars on the market is such that the number of used cars of value less than V is . Original owners must sell their used cars. Original owners know what their cars are worth, but buyers can't determine a car's value until they buy it. An owner can either take his car to an appraiser and pay the appraiser $200 to appraise the car (accurately and credibly) or sell the car unappraised. In equilibrium, car owners will have their cars appraised if and only if their value is at least

A) $2,500.
B) $400.
C) $200.
D) $600.
E) $800.

Question 19

Suppose that low-productivity workers all have marginal products of 10 and high-productivity workers all have marginal products of 12. The community has equal numbers of each type of worker. The local community college offers a course in microeconomics. High-productivity workers think taking this course is as bad as a wage cut of $5, and low-productivity workers think it is as bad as a wage cut of $9.

A) There is no separating equilibrium, but there is a pooling equilibrium in which everybody is paid $11.
B) There is a separating equilibrium in which high-productivity workers take the course and are paid $12 and low-productivity workers do not take the course and are paid $10.
C) There is no separating equilibrium and no pooling equilibrium.
D) There is a separating equilibrium in which high-productivity workers take the course and are paid $17 and low-productivity workers do not take the course and are paid $10.
E) There is a separating equilibrium in which high-productivity workers take the course and are paid $12 and low-productivity workers are paid $11.

Question 20

In Rustbucket, Michigan, there are 200 used cars for sale, half of them are good and half of them are lemons. Owners of lemons are willing to sell them for $200. Owners of good used cars are willing to sell them for prices above $1,100 but will keep them if the price is lower than $1,100. There is a large number of potential buyers who are willing to pay $500 for a lemon and $1,500 for a good car. Buyers can't tell good cars from bad, but original owners know.

A) There will be an equilibrium in which all used cars sell for $650.
B) There will be an equilibrium in which lemons sell for $200 and good used cars sell for $1,100.
C) There will be an equilibrium in which all used cars sell for $1,000.
D) The only equilibrium is one in which all used cars on the market are lemons and they sell for $500.
E) There will be an equilibrium in which lemons sell for $500 and good used cars sell for $1,500.