Deck 11: The Economics of Information

Question 1

The optimal amount of information to acquire before making a purchase is

A) zero.
B) as much as technically possible.
C) an amount such that the total cost of acquiring information equals the total benefit.
D) an amount such that the marginal cost of acquiring information equals the marginal benefit.

Answer 1

D

Question 2

According to the textbook,middlemen

A) add no value to economic activity.
B) only add value if the consumer gets a good deal.
C) only add value to themselves.
D) provide value through information and coordination.

Answer 2

D

Question 3

This graph illustrates the marginal costs and marginal benefits of acquiring information before making a major purchase.
If the original curves are MB and MC,the equilibrium value and quantity of information about this product are

A) V2,I2.
B) V3,I2.
C) V1,I1.
D) V3,I1.

Answer 3

C

Question 4

Sydney sells snow globes from a cart.When the cart is located on the sidewalk near a discount store,Sydney's customers have reservation prices of $5.When Sydney's cart is located on a sidewalk in an upscale mall,wealthier customers with reservation prices of $10 buy snow globes.Assume that Sydney can sell the same volume at either location and that marginal and average costs are $3 per globe at both locations.
Information about the reservation prices of Sydney's customers increases total surplus by

A) allowing consumers with different incomes to acquire things they value.
B) distributing snow globes to consumers who like them most.
C) encouraging sellers to locate in underserved areas.
D) distributing snow globes to consumers with the greatest willingness to pay.

Question 5

Jean places a high value on a loaf of bread with which to feed his family,but can only afford to pay $1.Val regularly pays $2 for a loaf of bread,but often the bread molds before Val can finish the loaf.Total economic surplus is maximized when

A) Jean receives a loaf of bread.
B) Val gives Jean leftover bread.
C) Val purchases the bread.
D) Val and Jean purchase equal quantities of bread.

Question 6

The difference between the price of electronic equipment in a retail store and on the Internet reflects in part

A) the extent to which middlemen drive the price up for extra profit.
B) the lack of competition between brick and mortar stores and online stores.
C) the value of personal attention and support at the retail store.
D) excessive markup.

Question 7

The reason the marginal benefit of information curve is downward sloping is because

A) some information is useless.
B) most information is useless.
C) information is subject to the law of diminishing marginal returns.
D) there is only so much to learn about a product.

Question 8

Better information about consumers' reservation prices generally leads to

A) a reduction in consumer surplus.
B) acquisition of goods by consumers who are willing to pay the highest price.
C) equitable distribution of goods among low income consumers.
D) acquisition of goods by consumers with the greatest need.

Question 9

Sydney sells snow globes from a cart.When the cart is located on the sidewalk near a discount store,Sydney's customers have reservation prices of $5.When Sydney's cart is located on a sidewalk in an upscale mall,wealthier customers with reservation prices of $10 buy snow globes.Assume that Sydney can sell the same volume at either location and that marginal and average costs are $3 per globe at both locations.
Maximization of total economic surplus indicates that Sydney should

A) alternate between the two locations and price discriminate.
B) sell only near the discount store and charge $5.
C) sell only in the upscale mall and charge $10.
D) alternate between the two locations and charge $5 at both locations.

Question 10

Information about the quality of a product is

A) intangible,and therefore not subject to economic principles.
B) impossible to objectively assess,and therefore not subject to economic principles.
C) both beneficial to have and costly to obtain,and therefore subject to economic principles.
D) subject to economic principles only when it is paid for,for example by subscribing to Consumer Reports or by hiring a financial advisor.

Question 11

Suppose Ginger is going to buy a house and a dishwasher.Assuming the marginal cost of searching for both is the same,one can predict that Ginger will

A) spend more time searching for the house than the dishwasher.
B) spend more time searching for the dishwasher than the house.
C) spend equal amounts of time searching for the dishwasher and the house.
D) trust the information from her real estate agent but not from the dishwasher salesperson.

Question 12

Growing technological sophistication of consumer goods tends to

A) shift the marginal cost of information curve to the right.
B) shift the marginal benefit of information curve to the right.
C) shift the marginal benefit of information curve to the left.
D) shift both the marginal benefit and the marginal cost of information to the right.

Question 13

Gasoline prices tend to be higher at stations that are just off the freeway than they are at stations in the middle of town.One reason for this is that

A) freeway exit stations sell a higher quality product.
B) people who buy gas at freeway exit stations tend to have higher search costs.
C) freeway exit stations are more likely to have an attached convenience store.
D) demand for gas at freeway exits is lower than it is in the middle of town.

Question 14

Grace and Will are moving to LA at the same time and both wish to find apartments to rent.Grace is staying with her aunt while Will is at the Best Western motel.One can predict that

A) Grace and Will will spend the same amount of time searching.
B) Will will search more than Grace.
C) Grace will search more than Will.
D) Will will have better information.

Question 15

Morgan lives in San Francisco and likes to dine out.Morgan has noticed that prices at restaurants near popular tourist destinations in the city tend to be higher than at restaurants of the same quality in other neighborhoods.One reason for this is that

A) search costs are higher for people who are unfamiliar with the area.
B) residents don't like to eat in restaurants frequented by tourists.
C) tourists don't like to worry about money or calculate savings while on vacation.
D) restaurant meals are a small fraction of the total cost of a vacation.

Question 16

The marginal cost curve for information is upward sloping because

A) most information is false.
B) consumers start with the least expensive sources and progress to more expensive sources.
C) there is only so much to learn about a product.
D) most information is misleading.

Question 17

This graph illustrates the marginal costs and marginal benefits of acquiring information before making a major purchase.
Suppose the marginal cost and marginal benefit curves were MC and MB several decades ago.However,because information about this product is now available on line,the

A) optimal value of information will increase.
B) optimal amount of information will increase.
C) optimal amount of information will stay the same,but it will cost less to acquire.
D) demand for information will increase.

Question 18

When auctions,such as those used on eBay,are used to sell a product

A) information about consumers' true reservation prices is minimized.
B) information about consumers' true reservation prices is revealed.
C) consumers have an incentive to bid higher than their true reservation prices.
D) consumers do not have an incentive to bid their true reservation prices.

Question 19

Adam Smith's invisible hand leads to an efficient outcome when

A) buyers are fully informed about all relevant aspects of the product and the market in which it is traded.
B) buyers have collected information only up to the point at which the marginal cost of acquiring more information equals the marginal benefit of having more information.
C) buyers have more information about the product being traded than do sellers.
D) buyers have less information about the product being traded than do sellers.

Question 20

This graph illustrates the marginal costs and marginal benefits of acquiring information before making a major purchase.
Suppose this graph describes a town in which the only way to gather any information about the good is through Consumer Reports.If the subscription price of Consumer Reports increases

A) the marginal benefit curve will shift from MB to MB₁.
B) the marginal cost curve will shift from MC₂ to MC.
C) the marginal benefit curve will shift from MB₁ to MB.
D) the marginal cost curve will shift from MC to MC_2.

Question 21

Expected value is an important consideration in a consumer's search decision because

A) the outcome of a particular search is certain.
B) the consumer may not be able to purchase the good after it is found.
C) the outcome of a particular search is uncertain.
D) a rational consumer will continue to search if the expected value is positive.

Question 22

The marginal cost of collecting information

A) rises as more information is collected.
B) falls as more information is collected.
C) is now zero because of the Internet.
D) is independent of the size of the expenditure.

Question 23

Summing the product of a gamble's outcome and the probability of its occurrence for all possible outcomes is

A) a fair gamble.
B) the variance of the gamble.
C) a useless calculation.
D) the expected value of the gamble.

Question 24

The free rider problem occurs when

A) buyers pay less than their reservation price.
B) sellers receive more than their reservation.
C) nonpaying buyers cannot be excluded from consuming a good or service.
D) paying buyers are excluded from consuming a good or service.

Question 25

Curly is offered the following gamble: a 25% chance of winning $1,500 and a 75% chance of losing $500.This gamble is a(n)

A) fair gamble.
B) unfair gamble.
C) almost fair gamble.
D) better than fair gamble.

Question 26

In the presence of free riders,the equilibrium allocation of any good will be

A) more than optimal.
B) zero.
C) optimal.
D) less than optimal.

Question 27

A free rider is someone who

A) obtains a good for a price less than the market equilibrium price.
B) does not pay for the good but still enjoys the benefits of consumption.
C) does not pay for the good and does not enjoy the benefits of consumption.
D) pays for the good and does not get the benefits of consumption.

Question 28

Given the typical shapes of the marginal cost and marginal benefit curves for collecting information,

A) it always pays to get more information.
B) consumers tend to become experts about most goods.
C) consumers remain completely ignorant about most goods.
D) the equilibrium is somewhere between complete ignorance and becoming an expert.

Question 29

Bookstores often sponsor author book-signing events.When a famous author came to Olivia's local bookstore,Olivia had to buy her book from the local store weeks before the signing and leave it at the store to be picked up at the time of the signing.The bookstore adopted this policy in order to

A) allow the author to sign many books in advance,speeding up the line.
B) maintain high levels of security at the signing.
C) prevent people from bringing in copies of the book that had been purchased elsewhere.
D) prevent people from plagiarizing the author's book.

Question 30

If an event has an expected value of zero,the event is termed a(n)

A) better than fair gamble.
B) unfair gamble.
C) zero gamble.
D) fair gamble.

Question 31

Dan owns an autographed copy of a Brittany Spears CD.If he sells it locally,he can get $100.If he puts it on eBay,he can get $500,of which he will pay $50 to eBay.eBay has therefore caused total economic surplus to be

A) unchanged.
B) $400 higher.
C) $50 higher.
D) $350 higher.

Question 32

The invisible hand will lead to _______ information than is socially optimal because of ________.

A) more;free riders
B) less;a prisoner's dilemma
C) more;external benefits
D) less;free riders

Question 33

Searching should continue until

A) all options have been explored.
B) the marginal benefits of further searching equals the marginal costs.
C) the marginal benefit of searching is zero.
D) the marginal cost of searching is zero.

Question 34

Lou's college bookstore carries all of the texts required for every class,organized by course number.Lou went over to the bookstore to see what was required,added up the costs of those texts and found that they will cost a total of $500 this semester.Identical books are available online for a total of $400.Lou decides to order all of the books online.
When Lou buys books online Lou is

A) generating deadweight loss.
B) violating antitrust laws.
C) free-riding.
D) defrauding the bookstore.

Question 35

Lou's college bookstore carries all of the texts required for every class,organized by course number.Lou went over to the bookstore to see what was required,added up the costs of those texts and found that they will cost a total of $500 this semester.Identical books are available online for a total of $400.Lou decides to order all of the books online.
Part of this price difference is due to

A) the information one can get at the bookstore.
B) higher quality products at the bookstore.
C) the bookstore's ignorance of internet prices.
D) the fact that internet texts are probably stolen.

Question 36

The marginal benefit of additional information

A) rises as more information is collected.
B) is independent of the size of the expenditure.
C) tends to be smaller for big ticket items,e.g. ,a car.
D) falls as more information is collected.

Question 37

In markets with incomplete information,middlemen tend to __________ total economic surplus by __________.

A) reduce;raising price
B) reduce;giving misleading information
C) increase;raising price
D) increase;matching sellers with buyers with higher reservation prices

Question 38

Alice decides to play the lottery.She has a 5% probability of winning $100 and a 95% probability of winning zero.The expected value of her decision to play is

A) $100.
B) $5.
C) $10.
D) $50.

Question 39

Fran is considering moving to Denver.There is a 70% chance that he will find a job that pays $1,000 more than what he currently earns and a 30% chance he will find one that pays $3,000 less.The expected value of moving to Denver is

A) -$200.
B) $200.
C) $700.
D) $900.

Question 40

Pat goes to the local stereo store to learn about high-end equipment.The salesperson spends an hour talking with Pat and demonstrating equipment.Pat then leaves and orders a system from an Internet store and saves $250.Pat's behavior is

A) illegal.
B) statistical discrimination.
C) free riding.
D) adverse selection.

Question 41

Cal has two choices.The first offers a 50% chance of winning $20 and a 50% chance of losing $20.The second option offers a 20% chance of winning $100 and an 80% chance of losing $20.Which choice has the larger expected value?

A) Both choices have the same expected value,so Cal would be indifferent between the two options.
B) The 50%-50% chance.
C) Both choices have the same expected value but the 50%-50% is better because the chance of payoff is greater.
D) The 20%-80% choice.

Question 42

Vinnie is looking for an apartment in Dayton,Ohio.In Dayton,75% of the two bedroom,one bath apartments are $800 a month and 25% are $600.The marginal cost of his search increases by $15 per search,i.e. ,the marginal cost of looking at the first apartment is $15,the marginal cost of looking at the second apartment is $30,the marginal cost of looking at the third apartment is $45 and so on.
The marginal cost of looking at the fourth apartments is

A) zero.
B) $15.
C) $45.
D) $60.

Question 43

Mel is thinking of going on a cruise.Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50.According to a very reliable source,the probability of nice weather is 60% and the probability of bad weather is 40%.Trip insurance is sometimes available.If purchased,it allows travelers to delay the cruise until the weather is nice.
Suppose that the price of the cruise is $1200.If Mel is not risk averse,Mel should buy trip insurance

A) never.
B) only if it costs less than $780.
C) only if it costs less than $20.
D) only if it costs less than $50

Question 44

Mel is thinking of going on a cruise.Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50.According to a very reliable source,the probability of nice weather is 60% and the probability of bad weather is 40%.Trip insurance is sometimes available.If purchased,it allows travelers to delay the cruise until the weather is nice.
If a gamble has an expected value of $10,then one can predict that

A) only risk-averse persons will take the gamble.
B) no risk-averse person will take the gamble.
C) all risk-neutral persons will take the gamble.
D) the gamble never pays off more than $10.

Question 45

Vinnie is looking for an apartment in Dayton,Ohio.In Dayton,75% of the two bedroom,one bath apartments are $800 a month and 25% are $600.The marginal cost of his search increases by $15 per search,i.e. ,the marginal cost of looking at the first apartment is $15,the marginal cost of looking at the second apartment is $30,the marginal cost of looking at the third apartment is $45 and so on.
The expected benefit to Vinnie of searching for an apartment is

A) $400.
B) $200.
C) $100.
D) $50.

Question 46

A 65% chance of winning $10 and a 35% chance of losing $5 would be classified as a(n)

A) better than fair gamble.
B) worse than fair gamble.
C) expected value.
D) fair gamble.

Question 47

Max is considering the following offer: a 50% chance of winning $10 and a 50% chance of losing $9.The expected value of this gamble is

A) $10.
B) $5.
C) 50 cents.
D) $1.

Question 48

Chris has determined that the probability of earning a 95 on the next economics test is 10%,the probability of earning an 85 is 40%,and the probability of earning a 75 is 50%.
Chris's expected score on this test can be determined by solving

A) (.33)(95)+ (.33)(85)+ (.33)(75).
B) (10)(95)+ (40)(80)+ (50)(70).
C) (.1)(95)+ (.4)(85)+ (.5)(75).
D) (95 + 85 + 75)/3.

Question 49

The probability that Mo will like a particular movie is 90% and has a value of $40.Not liking the movie has a value of -$10.The expected value of going to that movie is

A) $40.
B) $36.
C) $35.
D) $30.

Question 50

A risk-averse individual will

A) never accept any gamble.
B) accept a fair gamble.
C) only choose certain events.
D) accept only better than fair gambles.

Question 51

Consider the problem of finding an apartment for rent.If the expected value of going to see the next apartment is zero,then

A) all persons will consider seeing the next apartment.
B) only risk-averse persons will consider seeing the next apartment.
C) risk-averse people will not consider seeing the next apartment.
D) only risk-neutral persons will not consider seeing the next apartment.

Question 52

Chris has determined that the probability of earning a 95 on the next economics test is 10%,the probability of earning an 85 is 40%,and the probability of earning a 75 is 50%.
Chris's expected test score is _______.

A) 85
B) 81
C) 75
D) 78

Question 53

A risk-neutral individual will

A) accept only better than fair gambles.
B) see risk as neither good or bad.
C) accept any gamble with an expected value of zero or greater.
D) accept only gambles with an expected value of one or greater.

Question 54

Lou and Toby both live in a little town and are trying to sell their cars.Both of their cars have a blue book value of $10,000.Lou has an American car like most of the people in town.Toby owns a Bulgarian car,the only one in town.Who will get closest to the blue book value for her car?

A) Lou will since American cars are better than foreign cars.
B) Toby will since Bulgarian cars are more scarce than American cars.
C) Lou will,since people have more information about Lou's car.
D) Both should get the same price for their cars.

Question 55

Mel is thinking of going on a cruise.Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50.According to a very reliable source,the probability of nice weather is 60% and the probability of bad weather is 40%.Trip insurance is sometimes available.If purchased,it allows travelers to delay the cruise until the weather is nice.
Mels' friend Flo is risk-averse.Flo's reservation prices for cruises under the different weather conditions are the same as Mel's.Flo will

A) always buy trip insurance.
B) never be willing to pay more than $500 for a cruise.
C) be willing to pay more for trip insurance than Mel.
D) be willing to pay the same amount for trip insurance than Mel.

Question 56

Pascal is risk-averse while Marion is risk-neutral.Both are confronted with the following gamble: win $5,000 with the probability of 65% or lose $9,000 with a probability of 35%.One can predict that

A) both might accept the gamble.
B) only Pascal will accept the gamble.
C) only Marion will accept the gamble.
D) neither will accept the gamble.

Question 57

Vinnie is looking for an apartment in Dayton,Ohio.In Dayton,75% of the two bedroom,one bath apartments are $800 a month and 25% are $600.The marginal cost of his search increases by $15 per search,i.e. ,the marginal cost of looking at the first apartment is $15,the marginal cost of looking at the second apartment is $30,the marginal cost of looking at the third apartment is $45 and so on.
Suppose that Vinnie discovers that the distribution of high price - low price apartments is not 75% and 25% but 60% and 40%.He will now be willing to look at a maximum of __________ apartments.

A) 6
B) 5
C) 4
D) 3

Question 58

Vinnie is looking for an apartment in Dayton,Ohio.In Dayton,75% of the two bedroom,one bath apartments are $800 a month and 25% are $600.The marginal cost of his search increases by $15 per search,i.e. ,the marginal cost of looking at the first apartment is $15,the marginal cost of looking at the second apartment is $30,the marginal cost of looking at the third apartment is $45 and so on.
At most,Vinnie will be willing to look at _____ apartments.

A) 4
B) 3
C) 2
D) 1

Question 59

Mel is thinking of going on a cruise.Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50.According to a very reliable source,the probability of nice weather is 60% and the probability of bad weather is 40%.Trip insurance is sometimes available.If purchased,it allows travelers to delay the cruise until the weather is nice.
A gamble that offers a 1% chance of winning $699.93 and a 99% chance of losing $7.07 would be classified as a(n)

A) better than fair gamble.
B) gamble that only a risk-seeker would take.
C) fair gamble.
D) unfair gamble.

Question 60

Mel is thinking of going on a cruise.Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50.According to a very reliable source,the probability of nice weather is 60% and the probability of bad weather is 40%.Trip insurance is sometimes available.If purchased,it allows travelers to delay the cruise until the weather is nice.
In the absence of trip insurance,the most Mel will be willing to pay for the cruise is _______.

A) $1200
B) $1250
C) $1220
D) $1000

Question 61

Drew is taking an economics class in which two tests and a final will be given.The two tests are worth 25% each while the final exam counts for 50%.Drew's final score will be

A) (.25)(Score on Test 1)+ (.25)(Score on Test 2)+ (.50)(Score on Final Exam).
B) (Test 1 + Test 2 + Final Exam)/3.
C) (.33)(Test 1)+ (.33)(Test 2)+ (.33)(Final Exam).
D) (25)(Test 1)+ (25)(Test 2)+ (50)(Final Exam).

Question 62

Suppose that the salary range for recent college graduates with a bachelor's degree in economics is $30,000 to $50,000,with 25% of jobs offering $30,000 per year,50% offering $40,000 per year and 25% offering $50,000 per year and that in all other respects,the jobs are equally satisfying.Assume that in this market,a job offer remains open for only a short time so that continuing to search requires an applicant to reject any current job offer.
The expected starting salary for economics majors' is _______.

A) $30,000
B) $40,000
C) $45,000
D) $50,000

Question 63

Suppose that you notice that relationships that are formalized by marriage or other contractual arrangement tend to be more stable than relationships that are not formalized.A search-theory based explanation for this observation is that

A) formalization increases the cost of continuing to search for a better partner.
B) formal relationships are entered into only after a complete search of alternatives.
C) formal arrangements are a necessary part of any optimal search strategy.
D) remaining in long-term relationships is generally a dominant strategy.

Question 64

Alex,who is risk-neutral,is looking for an apartment.The distribution of apartments of equal quality is as follows: 70% rent for $700 per month,20% rent for $600 per month,and 10% rent for $500 per month.Alex's costs of searching rise by $10 with each search.
Alex should stop searching for a lower cost apartment when

A) Alex finds one that rents for $500.
B) Alex finds one that rents for $600.
C) the expected benefit of finding a cheaper apartment is less than 10 times the number of apartments visited.
D) the expected benefit of finding a cheaper apartment is less than 10.

Question 65

The existence of long term leases in apartment markets

A) benefits landlords by keeping occupancy rates high and harms tenants by reducing their mobility.
B) harms landlords and benefits tenants by preventing landlords from raising the rent each month.
C) creates an informational advantage for landlords.
D) solves a commitment problem that is inherent in markets with imperfect information.

Question 66

Identically furnished one bedroom apartments can be rented either for one week for $100 or a month for $375.Is the one-month rental option a rational strategy?

A) No,everyone will pick the one week option.
B) No,the landlord is not profit maximizing.
C) Yes,since it lessens the amount of searching the tenant does.
D) Yes,since it lessens the amount of searching for both landlord and tenant.

Question 67

Suppose that the salary range for recent college graduates with a bachelor's degree in economics is $30,000 to $50,000,with 25% of jobs offering $30,000 per year,50% offering $40,000 per year and 25% offering $50,000 per year and that in all other respects,the jobs are equally satisfying.Assume that in this market,a job offer remains open for only a short time so that continuing to search requires an applicant to reject any current job offer.
Moe has just received a job offer that pays $40,000 per year.Moe should

A) reject the offer and continue to look.
B) accept the offer if he is risk averse or risk neutral;otherwise continue searching.
C) accept the offer only if he is risk averse.
D) accept the offer regardless of his preference for risk.

Question 68

Alex,who is risk-neutral,is looking for an apartment.The distribution of apartments of equal quality is as follows: 70% rent for $700 per month,20% rent for $600 per month,and 10% rent for $500 per month.Alex's costs of searching rise by $10 with each search.
The expected value of rent in this apartment market is

A) $700.
B) $660.
C) $600.
D) $500.

Question 69

Suppose that there is not enough parking at an urban university.Sometimes students come to campus,spend a few minutes searching for a parking spot,and then decide that going to class isn't worth the effort of continuing to search for a spot and go home.Assume that all professors give midterm exams on the same day.You would expect the optimal time spent searching for a parking space on that day to __________ because __________.

A) decrease;the marginal costs are higher.
B) increase;the marginal costs are lower.
C) increase;the marginal benefits are higher.
D) decrease;the marginal costs are lower.

Question 70

Alex,who is risk-neutral,is looking for an apartment.The distribution of apartments of equal quality is as follows: 70% rent for $700 per month,20% rent for $600 per month,and 10% rent for $500 per month.Alex's costs of searching rise by $10 with each search.
Alex signed a 6-month lease for an apartment that provides for a monthly rent of $600.Shortly after signing the lease,Lou asks Alex to share an apartment,splitting the rent at $300 per person.The lease Alex signed

A) creates a commitment problem.
B) is a commitment device.
C) prevents Alex from free riding on Lou.
D) is unenforceable because it reduces economic freedom.

Question 71

Several Internet web sites,like Pricewatch.com,allow the consumer to input the name of a product.The site searches for the product and returns a list of suppliers with their price for the product displayed.This

A) increases the benefits of searching.
B) increases the free rider problem.
C) harms the Internet sellers.
D) reduces the costs of searching.

Question 72

There are two employers in Bucolic that hire people who do not have a high school degree: a grocery store and a hardware store.The grocery store pays $5.00 per hour and the hardware store pays $6.00 per hour.People who work at either store can work as many hours as they want at those wages.Assume that it takes two hours to interview for a job.Lee works at the grocery store,but would like to work at the hardware store.If Lee interviews at the hardware store,there is a 10% probability of being hired.Assume that Lee is risk-neutral.
What does it cost Lee to interview at the hardware store?

A) 0
B) $1
C) $5
D) $10

Question 73

Alex,who is risk-neutral,is looking for an apartment.The distribution of apartments of equal quality is as follows: 70% rent for $700 per month,20% rent for $600 per month,and 10% rent for $500 per month.Alex's costs of searching rise by $10 with each search.
The first apartment Alex visits rents for $700.What is the expected value of visiting a second apartment?

A) $20
B) $30
C) $40
D) $50

Question 74

Suppose that the salary range for recent college graduates with a bachelor's degree in economics is $30,000 to $50,000,with 25% of jobs offering $30,000 per year,50% offering $40,000 per year and 25% offering $50,000 per year and that in all other respects,the jobs are equally satisfying.Assume that in this market,a job offer remains open for only a short time so that continuing to search requires an applicant to reject any current job offer.
If this scenario describes job searches in general,the segment of the population that is most risk-averse will tend to earn

A) average salaries.
B) below-average salaries.
C) above-average salaries.
D) stable salaries.

Question 75

There are two employers in Bucolic that hire people who do not have a high school degree: a grocery store and a hardware store.The grocery store pays $5.00 per hour and the hardware store pays $6.00 per hour.People who work at either store can work as many hours as they want at those wages.Assume that it takes two hours to interview for a job.Lee works at the grocery store,but would like to work at the hardware store.If Lee interviews at the hardware store,there is a 10% probability of being hired.Assume that Lee is risk-neutral.
What is Lee's expected hourly benefit if Lee interviews at the hardware store?

A) $6
B) 60 cents
C) 10 cents
D) $1.00

Question 76

There are two employers in Bucolic that hire people who do not have a high school degree: a grocery store and a hardware store.The grocery store pays $5.00 per hour and the hardware store pays $6.00 per hour.People who work at either store can work as many hours as they want at those wages.Assume that it takes two hours to interview for a job.Lee works at the grocery store,but would like to work at the hardware store.If Lee interviews at the hardware store,there is a 10% probability of being hired.Assume that Lee is risk-neutral.
How many hours must Lee anticipate working at the hardware store to justify interviewing for the job?

A) 1 hour
B) 10 hours
C) 100 hours
D) 60 hours

Question 77

Imagine a world in which landlords always fix problems quickly,tenants never damage property and always pay their rent in a timely fashion.In such a world,lease agreements would ________

A) still exist to solve the commitment problem.
B) be unnecessary.
C) apply only to people with low monthly income.
D) only serve the interests of tenants.

Question 78

When the expected value of searching increases,

A) fewer searches occur.
B) the number of searches does not change.
C) more searches occur.
D) the cost of searching falls.

Question 79

Suppose that the salary range for recent college graduates with a bachelor's degree in economics is $30,000 to $50,000,with 25% of jobs offering $30,000 per year,50% offering $40,000 per year and 25% offering $50,000 per year and that in all other respects,the jobs are equally satisfying.Assume that in this market,a job offer remains open for only a short time so that continuing to search requires an applicant to reject any current job offer.
Who is most likely to have a job that pays $50,000?

A) Risk-averse graduates.
B) Graduates who don't mind taking risks.
C) Risk-neutral graduates.
D) Graduates who are either risk-neutral or risk-averse.

Question 80

Suppose that the salary range for recent college graduates with a bachelor's degree in economics is $30,000 to $50,000,with 25% of jobs offering $30,000 per year,50% offering $40,000 per year and 25% offering $50,000 per year and that in all other respects,the jobs are equally satisfying.Assume that in this market,a job offer remains open for only a short time so that continuing to search requires an applicant to reject any current job offer.
Who will accept an offer of $30,000?

A) Graduates who have been searching the longest
B) Graduates who enjoy taking risks
C) Graduates who are either risk-neutral or risk-averse
D) Only graduates who are risk-averse