Chapter 10 Test Bank KEY
1. Imbalances in information can cause problems between:
2. When the parties to a deal have access to different information:
3. Asymmetric information in a transaction can result in:
4. When a party to a transaction lacks relevant information:
5. When people are fully informed about the choices that they and other relevant economic actors face,
we say they:
6. People:
7. People:
8. Which of the following would be an example of a transaction later regretted because it was made with
incomplete information?
9. Which of the following is an example of a transaction that is made even though complete information is
not possible?
10. Risky transactions are those in which:
11. Problems are most likely to arise when:
12. When one person knows more than another, it creates a situation:
13. Information asymmetry is present when:
14. Information asymmetry means: 0-
15. Information asymmetry is a problem when:
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16. Information asymmetry is not a problem when:
17. An important type of information asymmetry is:
18. An important type of information asymmetry is:
19. Adverse selection arises when:
20. A consequence of adverse selection is:
21. A consequence of adverse selection is:
22. The classic example used to discuss the problem of adverse selection is:
23. The “lemons” problem is used to explain the concept of:
24. The used car market is:
25. The problem arising in the used car market can be alleviated by
26. One of the reasons the student loan repayment plan at Yale did not work was because:
27. Because of the lack of buyer’s information about a perfectly functioning used car:
28. An example of a market subject to adverse selection would be:
29. Markets that are more likely to be subject to adverse selection problems are those where:
30. An example of a market subject to adverse selection would be:
31. Adverse selection occurs in the used car market because:
32. Adverse selection occurs in the insurance market because:
33. Because the seller of a used car has more information than the buyer:
34. The presence of adverse selection:
35. The presence of adverse selection in a market causes:
36. In the principal-agent problem, the principal is:
37. In the principal-agent problem, the agent is:
38. The principal-agent problem:
39. The principal-agent problem occurs:
40. The principal-agent problem:
41. One way to avoid the principal-agent problem would be to have:
42. 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:
43. Moral hazard is:
44. Moral hazard is:
45. Moral hazard can be avoided by:
46. An example of a way employers can minimize moral hazard is to:
47. A typical reason moral hazard arises in the workplace is:
48. Moral hazard:
49. The difference between moral hazard and adverse selection is that moral hazard is about:
50. It is possible to have:
51. Less skillful drivers are more likely to buy auto insurance with lower deductibles. Economists use this
as an example of:
52. Drivers with auto insurance being more likely to act carelessly is an example of:
53. Insurance companies provide higher insurance premiums to plans with lower deductibles as a way
of:
54. Adverse selection:
55. Moral hazard:
56. Adverse selection:
57. Moral hazard:
58. Adverse selection is a problem that arises:
59. Moral hazard is a problem that arises:
60. When a lack of information exists for parties to a deal:
61. Which of the following is a case of asymmetric information:
62. One way to solve the problems caused by information asymmetry is:
63. One way to solve the problems caused by information asymmetry is:
64. An approach that can be taken by someone directly involved in a transaction to solve the problems
caused by information asymmetry is:
65. An employer that only employs applicants who have college degrees is an example of
66. A potential employee that dresses well for an interview is attempting to reduce asymmetric
information by
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67. In order for education to be effective as a signal of worker productivity it must be
68. An approach that can be taken by someone directly involved in a transaction to solve the problems
caused by information asymmetry is:
69. An approach that can be taken by someone directly involved in a transaction to solve the problems
caused by information asymmetry is:
70. A way in which government can attempt to solve the problems caused by information asymmetry in
the marketplace is:
71. A way in which government can attempt to solve the problems caused by information asymmetry in
the marketplace is:
72. When you are faced with a lack of information concerning a purchase, you should:
73. Some people make purchases without complete information because:
74. If the cost of acquiring more information outweighs the benefit of having more information about a
good, then we can predict:
75. Taking action to reveal private information about someone else is called:
76. Screening is when someone takes action to: