Question 1

Table 14.1
-Refer to Table 14.1,which shows the market for used motorcycles in a small Midwestern town.As buyers adjust their expectations of lemons in this market:

Accepted Answer

As buyers adjust their expectations of lemons in the market for used motorcycles, the proportion of lemons in the market will rise. This means that there will be a higher number of low-quality motorcycles being sold, which will lead to a decrease in the average quality of motorcycles in the market. This, in turn, will lower the price that buyers are willing to pay for motorcycles and reduce the quantity of plums supplied. Therefore, only choice C is correct.

Question 2

Adverse selection describes the situation that occurs when:

Accepted Answer

Adverse selection occurs when there is asymmetric information between buyers and sellers, leading to high-quality products being driven out of the market by low-quality products because buyers cannot accurately assess the quality of a product before purchasing.

Question 3

Table 14.2
-Refer to Table 14.2,which shows the market for used fishing boats.Which of the following is true about this market?

Accepted Answer

Given that the market for used fishing boats is likely experiencing a situation where demand exceeds supply at the current price, this imbalance would naturally lead to an increase in prices as sellers realize they can charge more due to the higher demand for their limited supply of boats.

Question 4

On an automobile insurance policy,a deductible is the dollar amount that the driver will pay toward damages before the insurance company will pay anything.Asymmetric information suggests that:

Accepted Answer

The answer of On an automobile insurance policy,a deductible is...

Question 5

Suppose that buyers in the used refrigerator market are willing to pay $500 for a high-quality refrigerators and $200 for a low-quality refrigerators.If buyers believe that 50% of all used refrigerators are low-quality,what is the maximum price they would be willing to pay for a used refrigerator?

Accepted Answer

The answer of Suppose that buyers in the used refrigerator...

Question 6

In the market for used boats there are high-quality boats and poor-quality boats.Potential buyers cannot determine prior to purchase whether the boat is high quality or low quality.Which of the following statements best describes what is likely to happen in this market?

Accepted Answer

This scenario is an example of the "market for lemons" problem described by George Akerlof. In a market where quality cannot be easily assessed by buyers, the price tends to reflect an average of high and low-quality goods. Sellers of high-quality boats know their boats are worth more than this average price, so they are less likely to sell, leading to a market where only lower-quality boats are sold.

Question 7

You want to purchase a new car.You have gone to 3 dealerships that sell the type of car you want.The price of the car is different at each of the dealerships.You have estimated that if you go to another dealership,the marginal amount you may save will be $250,but the marginal cost of going to the dealership would be $350.Which of the following statements is accurate?

Accepted Answer

Based on the given information, the marginal cost of going to the next dealership ($350) is greater than the marginal benefit of doing so ($250). Therefore, it would not be rational to go to the next dealership as the marginal cost exceeds the marginal benefit.

Question 8

The result of adverse selection is that:

Accepted Answer

Adverse selection occurs when lower-quality producers have more information about the product than the consumer, leading to them dominating the market and driving higher-quality producers out. This results in consumers being left with lower-quality products overall. Therefore, choice B is the correct option.

Question 9

Table 14.2
-Refer to table 14.2.The buyers assumed chance of getting a lemon will ________ and hence the willingness to pay for the used boat will ________.

Accepted Answer

The answer of  Table 14.2
-Refer to table 14.2.The buyers...

Question 10

An example of adverse selection is:

Accepted Answer

The answer of An example of adverse selection is:
...

Question 11

Table 14.2
-Refer to Table 14.2,which shows the market for used fishing boats.Which of the following is NOT true about this market?

Accepted Answer

None of the options mention anything about lemons, so it is irrelevant to the market for used fishing boats. A and B are both true statements based on the information in Table 14.2, so they can be eliminated as the NOT true statement. Therefore, the answer is C.

Question 12

Table 14.1
-Refer to Table 14.1,which shows the market for used motorcycles in a small Midwestern town.Which of the following is true?

Accepted Answer

The answer of  Table 14.1
-Refer to Table 14.1,which shows...

Question 13

In the market for automobile insurance,asymmetric information occurs when:

Accepted Answer

Asymmetric information in the context of automobile insurance occurs when one party (in this case, the drivers) has more or better information than the other party (the insurance company). Choice C is correct because it describes a situation where drivers who are aware of their higher risk (due to their driving habits, history, or other factors) opt to purchase more insurance, while the insurance company may not have access to this detailed personal information, leading to a mismatch in information between the two parties.

Question 14

The lemons model may cause markets with asymmetric information:

Accepted Answer

The lemons model suggests that in markets with asymmetric information, high-quality goods are driven out because buyers cannot distinguish them from low-quality goods, leading to a reduction in the number of high-quality goods.

Question 15

The domination of the used car market by lemons is an example of the ________ problem.

Accepted Answer

The domination of the used car market by lemons is an example of adverse selection. Adverse selection occurs when one party has more information than the other and uses it to their advantage, leading to a market failure. In this case, sellers of lemons (low-quality cars) may have more information about the car's defects than the buyers, who are left with a subpar product after the transaction is complete.

Question 16

If one side of the market,either the buyer or seller of a good or service has better information than the other side,there is:

Accepted Answer

Asymmetric information refers to a situation where one side of the market has better information than the other, leading to potential problems such as adverse selection and moral hazard.

Question 17

Dan is trying to sell a high-quality used desktop computer,but all potential buyers are not willing to pay the price that Dan wants.This is likely due to a (an)________ problem.

Accepted Answer

Adverse selection occurs when the buyers have more information about the product than the seller. In this case, the potential buyers may have more information about the market value of used desktop computers than Dan, and therefore are not willing to pay the price he is asking for. This could lead to a situation where only low-quality products are left in the market, and the sellers of high-quality products like Dan may need to lower their prices to find buyers.

Question 18

Suppose that buyers in the used electric washer market are willing to pay $100 for a high-quality electric washer and $50 for a low-quality electric washer.If buyers believe that 70% of all used electric washer are low-quality,what is the maximum price they would be willing to pay for a used electric washer?

Accepted Answer

Buyers expect 70% low-quality and 30% high-quality washers. The expected value is 0.7*$50 + 0.3*$100 = $65.

Question 19

A situation in which the uninformed side of the market must choose from an undesirable selection of goods:

Accepted Answer

Asymmetric information occurs when one party in a transaction has more or better information than the other, often leading the uninformed side to make choices from an undesirable selection of goods.

Question 20

Because of asymmetric information,a seller of a lemon used car earns:

Accepted Answer

The answer of Because of asymmetric information,a seller of a...

Quiz 14: Imperfect Information: Adverse Selection and Moral Hazard

Table 14.1 -Refer to Table 14.1,which shows the market for used motorcycles in a small Midwestern town.As buyers adjust their expectations of lemons in this market:

Adverse selection describes the situation that occurs when:

Table 14.2 -Refer to Table 14.2,which shows the market for used fishing boats.Which of the following is true about this market?

On an automobile insurance policy,a deductible is the dollar amount that the driver will pay toward damages before the insurance company will pay anything.Asymmetric information suggests that:

Suppose that buyers in the used refrigerator market are willing to pay $500 for a high-quality refrigerators and $200 for a low-quality refrigerators.If buyers believe that 50% of all used refrigerators are low-quality,what is the maximum price they would be willing to pay for a used refrigerator?

In the market for used boats there are high-quality boats and poor-quality boats.Potential buyers cannot determine prior to purchase whether the boat is high quality or low quality.Which of the following statements best describes what is likely to happen in this market?

The result of adverse selection is that:

Table 14.2 -Refer to table 14.2.The buyers assumed chance of getting a lemon will and hence the willingness to pay for the used boat will .

An example of adverse selection is:

Table 14.2 -Refer to Table 14.2,which shows the market for used fishing boats.Which of the following is NOT true about this market?

Table 14.1 -Refer to Table 14.1,which shows the market for used motorcycles in a small Midwestern town.Which of the following is true?

In the market for automobile insurance,asymmetric information occurs when:

The lemons model may cause markets with asymmetric information:

The domination of the used car market by lemons is an example of the ________ problem.

If one side of the market,either the buyer or seller of a good or service has better information than the other side,there is:

Dan is trying to sell a high-quality used desktop computer,but all potential buyers are not willing to pay the price that Dan wants.This is likely due to a (an) ________ problem.

A situation in which the uninformed side of the market must choose from an undesirable selection of goods:

Because of asymmetric information,a seller of a lemon used car earns:

Quiz 14: Imperfect Information: Adverse Selection and Moral Hazard

Table 14.1 -Refer to Table 14.1,which shows the market for used motorcycles in a small Midwestern town.As buyers adjust their expectations of lemons in this market:

Adverse selection describes the situation that occurs when:

Table 14.2 -Refer to Table 14.2,which shows the market for used fishing boats.Which of the following is true about this market?

On an automobile insurance policy,a deductible is the dollar amount that the driver will pay toward damages before the insurance company will pay anything.Asymmetric information suggests that:

Suppose that buyers in the used refrigerator market are willing to pay $500 for a high-quality refrigerators and $200 for a low-quality refrigerators.If buyers believe that 50% of all used refrigerators are low-quality,what is the maximum price they would be willing to pay for a used refrigerator?

In the market for used boats there are high-quality boats and poor-quality boats.Potential buyers cannot determine prior to purchase whether the boat is high quality or low quality.Which of the following statements best describes what is likely to happen in this market?

The result of adverse selection is that:

Table 14.2 -Refer to table 14.2.The buyers assumed chance of getting a lemon will ________ and hence the willingness to pay for the used boat will ________.

An example of adverse selection is:

Table 14.2 -Refer to Table 14.2,which shows the market for used fishing boats.Which of the following is NOT true about this market?

Table 14.1 -Refer to Table 14.1,which shows the market for used motorcycles in a small Midwestern town.Which of the following is true?

In the market for automobile insurance,asymmetric information occurs when:

The lemons model may cause markets with asymmetric information:

The domination of the used car market by lemons is an example of the ________ problem.

If one side of the market,either the buyer or seller of a good or service has better information than the other side,there is:

Dan is trying to sell a high-quality used desktop computer,but all potential buyers are not willing to pay the price that Dan wants.This is likely due to a (an) ________ problem.

A situation in which the uninformed side of the market must choose from an undesirable selection of goods:

Because of asymmetric information,a seller of a lemon used car earns:

Table 14.2 -Refer to table 14.2.The buyers assumed chance of getting a lemon will and hence the willingness to pay for the used boat will .