Asymmetric Information

Jamil’s car is in need of repair, so John decides to sell it avoid the repair bill. Unaware of the problem, Shahab buys the car. This is an example of ?

A. hidden actions
B. adverse selection
C. moral hazard
D. adverse selection

Markus is a travelling salesman for an apparel company. In this employment relationship, Markus is the ?

A. agent
B. principle
C. screener
D. signaler

Which of the following is an example of a signal that is used to reveal private information ?

A. Enzo carefully chooses a special gift for Josephine
B. Josephine earns her MBA from the Harvard Business School
C. Lexus advertises its cars during the football World Cup Final.
D. All of these answers are correct

Which of the following is not a method firms use to avoid the moral hazard problem in the employment relationship ?

A. They pay employees with delayed compensation such as a year-end bonus
B. They buy life insurance on their workers
C. They pay above equilibrium wages
D. They put hidden video cameras in the workplace

A life insurance company forces Enzo to have a medical examination prior to selling him insurance ?

A. transitivity
B. impossibility
C. independence
D. unanimity

Refer to Figure 1 What percent of the population vote for A when the choice is between A and B ?

A. 75 percent
B. 35 percent
C. 60 percent
D. 40 percent
E. 25 percent

hich of the following is not a property required of a perfect voting system ?

A. The median voter always wins
B. no dictators
C. independence of irrelevant
D. transitivity

Which of the following is true under pairwise majority rule if people vote for the outcome closest to their most preferred outcome ?

A. The average preferred outcome wins
B. There is no clear winner due to Arrow’s Impossibility Theorem.
C. The outcome preferred by the median voter wins
D. The outcome preferred by the greatest number of voters wins.

In the ultimatum game, what split would be rational for both the person proposing the split and the person who must accept or reject the split ?

A. There is no rational solution
B. 75/25
C. 99/1
D. 1/99
E. 50/50

Jamil’s friend dies of a sudden heart attack. Jamil rushes to his doctor for an expensive physical examination. This response demonstrates that ?

A. People give too much weight to a small number of vivid observations
B. People easily change their minds when confronted with new information
C. People enjoy going to the doctor
D. People tend to plan ahead and follow through on their plans