Deck 10: Information

Question 1

Information asymmetry means: 0-

A) people have good enough information to make acceptable choices, but not complete information.
B) complete information is not possible to obtain.
C) the lack of information in a market prevents it from existing.
D) a situation in which one person knows more than another.

Answer 1

D

Question 2

Information asymmetry is not a problem when:

A) the wants of both parties are aligned with one another.
B) the wants of both parties are opposed to one another.
C) the constraints of both parties are identical.
D) both parties lack the same information.

Answer 2

A

Question 3

When the parties to a deal have access to different information:

A) markets will be efficient.
B) parties will voluntarily share information truthfully in order to achieve efficiency.
C) markets may fail to exist in such cases.
D) parties will blindly trust one another.

Answer 3

C

Question 4

Risky transactions are those in which:

A) complete information is not available.
B) there is an balance of information between buyer and seller.
C) one party to a transaction uses the other party's lack of information to their advantage.
D) one party withholds information from the other party and uses that to his advantage.

Question 5

When a party to a transaction lacks relevant information:

A) other parties will voluntarily share this information truthfully.
B) they will not make the deal without complete information.
C) they sometimes seek out information in ways that are not obvious.
D) they always make the deal blindly.

Question 6

When people are fully informed about the choices that they and other relevant economic actors face,we say they:

A) have complete information.
B) will always try to hide that information to gain advantage.
C) will always be willing to go through with the transaction.
D) have relevant information.

Question 7

Asymmetric information in a transaction can result in:

A) moral hazard.
B) adverse selection.
C) a lemons problem.
D) All of these statements are true.

Question 8

Adverse selection arises when:

A) the wants of both parties are aligned with one another.
B) buyers and sellers have different information about the quality of a good or the riskiness of a situation.
C) buyers and sellers with the same information about the quality of a good or the riskiness of a situation seek each other out.
D) people behave in a riskier way because they have incomplete information.

Question 9

Which of the following is an example of a transaction that is made even though complete information is not possible?

A) Joe buys a puppy in hopes that the puppy will be his hiking companion for the next 20 years.
B) Alex buys house insurance and has never filed a claim.
C) Mike saves his money by putting it in a mutual fund.
D) All of these are examples of transactions that must be made with incomplete information.

Question 10

People:

A) always have access to complete information.
B) rarely have access to complete information.
C) never have access to complete information.
D) often have access to complete information.

Question 11

Imbalances in information can cause problems between:

A) buyers and sellers.
B) lenders and borrowers.
C) employers and employees.
D) All of these statements are true.

Question 12

Which of the following would be an example of a transaction later regretted because it was made with incomplete information?

A) Sue purchased a lottery ticket that did not win her any money.
B) Larry moved to a new apartment but later decided it was too small for his needs.
C) Tim bought products from a seller that knew they were defective.
D) All of these are good examples of incomplete information.

Question 13

When one person knows more than another,it creates a situation:

A) in which the transaction is always regretted.
B) called information asymmetry.
C) in which the transaction will not occur.
D) called information dominance.

Question 14

An important type of information asymmetry is:

A) adverse selection.
B) ethical constraint.
C) advantage imbalance.
D) information hazard.

Question 15

A consequence of adverse selection is:

A) buyers gain surplus they would have lost with complete information.
B) sellers gain surplus they would have lost with complete information.
C) transactions do not take place that would have been possible if the parties had the same information.
D) buyers make irrational decisions because they lack information.

Question 16

Information asymmetry is a problem when:

A) a buyer and seller have aligned incentives.
B) a buyer and seller have opposing incentives.
C) a market is highly efficient.
D) a market is highly inefficient.

Question 17

People:

A) often have good enough information to make acceptable choices.
B) always have enough information to make acceptable choices.
C) always have access to complete information.
D) never have access to complete information.

Question 18

Information asymmetry is present when:

A) one person knows more than another.
B) there is risk.
C) when both parties are lacking the same information.
D) All of these statements are true.

Question 19

An important type of information asymmetry is:

A) information withholding.
B) advantage imbalance.
C) moral hazard.
D) ethical constraint.

Question 20

Problems are most likely to arise when:

A) complete information is impossible to obtain.
B) people have good enough information to make acceptable choices.
C) one person knows more than another.
D) both parties lack the same information.

Question 21

An example of a market subject to adverse selection would be:

A) the video game market.
B) the new appliance market.
C) the used car market.
D) uniform commodity markets like crude oil.

Question 22

The principal-agent problem occurs:

A) when the principal has less information than the agent.
B) when the principal has more information than the agent.
C) when the agent has less information than the principal.
D) not observed in reality.

Question 23

In the principal-agent problem,the principal is:

A) a person who entrusts someone with performing a task.
B) a person who carries out a task on someone else's behalf.
C) a person who is in charge of an educational system.
D) a person who is the source of the problem.

Question 24

The "lemons" problem is used to explain the concept of:

A) complete information.
B) adverse selection.
C) moral hazard.
D) produce markets.

Question 25

Markets that are more likely to be subject to adverse selection problems are those where:

A) information is easily available to consumers and sellers.
B) there is an imbalance of information between buyers and sellers
C) the goods sold in that market are highly uniform in quality.
D) the market relies on independent certifiers of quality.

Question 26

A consequence of adverse selection is:

A) buyers and sellers may lose surplus they would have gained with more complete information.
B) too many transactions occur of low value.
C) sellers violate the law when giving false information to buyers.
D) None of these statements are true.

Question 27

The presence of adverse selection in a market causes:

A) some transactions to fail to take place.
B) a deadweight loss.
C) market failure.
D) All of these statements are true.

Question 28

Because of the lack of buyer's information about a perfectly functioning used car:

A) the buyer will pay less than what it's worth because of the chance that it will be a lemon.
B) sellers of perfectly functioning used cars will be more likely to enter the market.
C) the market will eventually become saturated with high quality cars.
D) All of these statements are true.

Question 29

The principal-agent problem:

A) arises from an imbalance of information.
B) is caused by the principal having imperfect information about the agent.
C) is caused by the principal being unable to perfectly observe the actions of the agent.
D) All of these statements are true.

Question 30

Adverse selection occurs in the used car market because:

A) the seller has more information than the buyer.
B) the buyer has more information than the seller.
C) both the buyer and the seller have incomplete information.
D) Any of these could be the cause of adverse selection in the used car market.

Question 31

Adverse selection occurs in the insurance market because:

A) the seller has more information than the buyer.
B) the buyer has more information than the seller.
C) both the buyer and the seller have incomplete information.
D) Any of these could be the cause of adverse selection in insurance market.

Question 32

The presence of adverse selection:

A) reduces the efficiency of markets.
B) increases the efficiency of markets.
C) does not affect the efficiency of markets.
D) makes the buyer less efficient and the seller more efficient.

Question 33

Because the seller of a used car has more information than the buyer:

A) the problem of moral hazard occurs.
B) the problem of information overload occurs.
C) the problem of adverse selection occurs.
D) the problem of bargaining imbalance occurs.

Question 34

The classic example used to discuss the problem of adverse selection is:

A) fruit and produce markets, such as lemons.
B) workers who shirk when their effort isn't closely monitored.
C) the imbalance of information that exists between a buyer and seller of a used car.
D) drivers with insurance who tend to drive more recklessly.

Question 35

One of the reasons the student loan repayment plan at Yale did not work was because:

A) complete information was given to both the students and the University.
B) there was an adverse selection of students into the program.
C) the moral hazard of students made them take riskier jobs.
D) the collective bargaining with the students reached an impasse.

Question 36

The used car market is:

A) used to describe the "lemons" problem.
B) an example of what happens when there is an imbalance of information present in a market.
C) subject to the problem of adverse selection.
D) All of these statements are true.

Question 37

An example of a market subject to adverse selection would be:

A) the used car market.
B) the insurance market.
C) the financial market.
D) All of these statements are true.

Question 38

In the principal-agent problem,the agent is:

A) a person who entrusts someone with a task.
B) a person who carries out a task on someone else's behalf.
C) a person who is in charge of a top-secret mission.
D) a person who has the same objectives as the principal.

Question 39

The principal-agent problem:

A) is when the principal has more information than the agent.
B) is when the agent is tempted to put in more effort than the principal would like.
C) is commonly seen in the employer-employee relationship.
D) is when the principal and agent have the same objectives.

Question 40

The problem arising in the used car market can be alleviated by

A) providing buyers with more complete information on the condition of a used car.
B) sellers offering warranties.
C) having third parties certify the condition of a used car.
D) All of these statements are true.

Question 41

Moral hazard is:

A) when individuals make exchanges in the grey market.
B) the tendency for people to behave in a riskier way when they're insured.
C) when one party acts in a way that is ethically outside the norm in a market exchange.
D) when both parties act in a way that is ethically outside the norm in a market exchange.

Question 42

Moral hazard:

A) is a normative judgement about the moral choices made by economic agents.
B) is about actions and occurs after the parties have voluntarily entered into an agreement.
C) is always present when adverse selection arises.
D) All of these statements are true.

Question 43

It is possible to have:

A) moral hazard without adverse selection present in a market.
B) adverse selection present in a market without moral hazard.
C) both moral hazard and adverse selection present in a market.
D) All of these statements are true.

Question 44

The tendency for people to behave in a riskier way or to renege on contracts when they do not face the full consequences of their actions is called:

A) moral hazard.
B) adverse selection.
C) counter information.
D) collective bargaining.

Question 45

Moral hazard:

A) always happens when adverse selection is a problem.
B) never happens when adverse selection is a problem.
C) can happen when adverse selection is a problem.
D) None of these statements is true.

Question 46

Moral hazard is a problem that arises:

A) before the parties have entered into an agreement.
B) after the parties have voluntarily entered into an agreement.
C) either before or after the parties have entered into an agreement.
D) rarely in any market.

Question 47

Less skillful drivers are more likely to buy auto insurance with lower deductibles.Economists use this as an example of:

A) adverse selection.
B) moral hazard.
C) asymmetric selection.
D) information optimization.

Question 48

The difference between moral hazard and adverse selection is that moral hazard is about:

A) unobserved characteristics of people occurring before parties enter into an agreement.
B) never happens when adverse selection is a problem.
C) actions that arise after the parties enter an agreement
D) None of these statements is true.

Question 49

Moral hazard is:

A) when people engage in behavior that is considered highly desirable by the person who bears the cost of the behavior.
B) when buyers and sellers have different information about the quality of a good or the riskiness of a situation.
C) when buyers and sellers with the same information about the quality of a good or the riskiness of a situation agree to a somewhat shady deal.
D) the tendency for people to behave in a riskier way or provide less effort when they do not face the full consequences of their actions.

Question 50

Moral hazard can be avoided by:

A) employers monitoring employee effort.
B) removing the asymmetric information.
C) employers incentivizing employees to maintain consistent effort.
D) All of these statements are true.

Question 51

Adverse selection is a problem that arises:

A) before the parties have entered into an agreement.
B) after the parties have voluntarily entered into an agreement.
C) either before or after the parties have entered into an agreement.
D) rarely in any market.

Question 52

A typical reason moral hazard arises in the workplace is:

A) employees do not directly benefit from their effort, only their time spent at work.
B) employees get paid the same, whether they try really hard or not.
C) employees have no incentive to let the employer know how hard they can really work, because that might be expected of them all the time.
D) All of these statements are true.

Question 53

Adverse selection:

A) results from unobserved characteristics of people or commodities.
B) is about the actions of people.
C) occurs after the parties have entered into an agreement.
D) All of these statements are true.

Question 54

An example of a way employers can minimize moral hazard is to:

A) monitor employees' computer activity.
B) offer bonuses for consistent productivity.
C) videotape the workplace.
D) All of these are ways to minimize moral hazard.

Question 55

Moral hazard:

A) is about the unobserved characteristics of people.
B) is about the unobserved actions of people.
C) occurs before the parties have entered into an agreement.
D) None of these statements is true.

Question 56

One way to avoid the principal-agent problem would be to have:

A) the employee constantly monitor the employer's activities.
B) the employer constantly monitor the employee's efforts.
C) the employer share all management choices with employees before making decisions.
D) the employee sign a waiver of release.

Question 57

Insurance companies provide higher insurance premiums to plans with lower deductibles as a way of:

A) screening between types of drivers.
B) avoiding moral hazard.
C) reducing the lemons problem.
D) optimizing information acquisition.

Question 58

Drivers with auto insurance being more likely to act carelessly is an example of:

A) adverse selection.
B) moral hazard.
C) asymmetric selection.
D) information optimization.

Question 59

When a lack of information exists for parties to a deal:

A) it is always worth getting more information before making a decision.
B) the cost of acquiring information sometimes is prohibitive and not worth it.
C) an exchange will never happen.
D) the exchange will always happen anyway, with little chance of maximizing surplus.

Question 60

Adverse selection:

A) is about actions and occurs after the parties have voluntarily entered into an agreement.
B) is always present when moral hazard arises.
C) relates to unobserved characteristics of people or goods and occurs before the parties have entered into an agreement.
D) All of these statements are true.

Question 61

Taking action to reveal one's own private information is called:

A) screening.
B) signaling.
C) statistical discrimination.
D) proofing.

Question 62

One way to solve the problems caused by information asymmetry is:

A) surfing.
B) signaling.
C) proofing.
D) All of these are solutions to information asymmetry.

Question 63

If the cost of acquiring more information outweighs the benefit of having more information about a good,then we can predict:

A) the exchange will definitely not take place.
B) the exchange may take place anyway.
C) the exchange will not benefit anyone.
D) the exchange will take place, but will be regretted in the future.

Question 64

When you are faced with a lack of information concerning a purchase,you should:

A) consider the opportunity cost of gaining more information.
B) always seek out the most information you can before making a purchase.
C) not make the purchase without complete information.
D) None of these statements is true.

Question 65

A potential employee that dresses well for an interview is attempting to reduce asymmetric information by

A) looking more intelligent.
B) signaling their type.
C) showing moral character.
D) mandating that information be shared.

Question 66

Taking action to reveal private information about someone else is called:

A) screening.
B) signaling.
C) discriminating.
D) illegal.

Question 67

An example of screening during the hiring process is:

A) just asking for the information.
B) an interview.
C) checking references.
D) All of these are ways to screen candidates.

Question 68

An approach that can be taken by someone directly involved in a transaction to solve the problems caused by information asymmetry is:

A) screening.
B) mandating that information be shared.
C) proofing.
D) racial discrimination.

Question 69

Signaling is when someone takes action to:

A) reveal private information about someone else.
B) reveal one's own private information.
C) find out the opportunity cost of acquiring more information.
D) None of these statements is true.

Question 70

In order for education to be effective as a signal of worker productivity it must be

A) easy for everyone to get a college degree.
B) costly for less productive workers to imitate.
C) that the employee has taken classes in economics.
D) none of the above make education an effective signal.

Question 71

Which of the following is a case of asymmetric information:

A) The buyer and seller of a used car don’t know how long the car will operate.
B) A provider of health insurance does not know whether a specific client is a smoker or not.
C) Neither you nor the insurance company has perfect information about whether a flood will occur.
D) None of the above are examples of asymmetric information.

Question 72

Some people make purchases without complete information because:

A) they are irrational.
B) the opportunity cost of getting more information outweighs the benefit of having more information.
C) the benefit of having more information outweighs the opportunity cost of acquiring it.
D) No one makes purchases without complete information.

Question 73

A way in which government can attempt to solve the problems caused by information asymmetry in the marketplace is:

A) statistical discrimination.
B) screening.
C) disclosure laws.
D) building a reputation.

Question 74

Screening is when someone takes action to:

A) reveal one's own private information.
B) find out the opportunity cost of acquiring more information.
C) reveal private information about someone else.
D) None of these statements is true.

Question 75

A way in which government can attempt to solve the problems caused by information asymmetry in the marketplace is:

A) statistical discrimination.
B) signaling.
C) mandating that information be shared.
D) All of these are ways the government deals with information asymmetry.

Question 76

An approach that can be taken by someone directly involved in a transaction to solve the problems caused by information asymmetry is:

A) proofing.
B) building a reputation.
C) disclosure laws.
D) mandating that information be shared.

Question 77

An employer that only employs applicants who have college degrees is an example of

A) proofing.
B) moral hazard.
C) screening.
D) mandating that information be shared.

Question 78

The private information revealed during screening typically refers to information:

A) that is personal.
B) that is embarrassing.
C) that is not public.
D) that individuals generally do not want anyone to find out.

Question 79

An approach that can be taken by someone directly involved in a transaction to solve the problems caused by information asymmetry is:

A) statistical discrimination.
B) mandating that information be shared.
C) proofing.
D) All of these are ways to solve information asymmetry.

Question 80

One way to solve the problems caused by information asymmetry is:

A) screening.
B) signaling.
C) building a reputation.
D) All of these are solutions to information asymmetry.