Question 1

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

Accepted Answer

A)   agent.
B)   principal.
C)   screener.
D)   signaller.E) C) and D)
F) A) and C)

Question 2

How does the prospect theory work?

Accepted Answer

Prospect theory suggests that when prese...

Question 3

Which of the following help explain why firms pay bonuses to workers during particularly profitable years to prevent workers from becoming disgruntled? People:

Accepted Answer

A)   are rational maximizers.
B)   are reluctant to change their minds.
C)   are inconsistent over time.
D)   care about fairness.E) C) and D)
F) B) and D)

Question 4

The ultimatum game reveals that

Accepted Answer

A)   it does not make sense to try to maximize profits.
B)   people may have an innate sense of fairness that economic theory does not capture.
C)   offering someone a wildly unfair outcome is usually OK since people tend to make decisions using a "something is better than nothing" philosophy.
D)   Both a and BE) None of the above
F) C) and D)

Question 5

Which of the following relationships involves asymmetric information?

Accepted Answer

A)   An employee knows more than his employer knows about his work effort.
B)   A borrower knows more than the lender about his ability to repay the loan.
C)   The seller of a 30-year-old house knows more than the buyer about the condition of the house.
D)   All of the above are correct.E) B) and D)
F) C) and D)

Question 6

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

Accepted Answer

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

Question 7

Because people with hidden health problems are more likely to buy health insurance than are other people,

Accepted Answer

A)   the price of health insurance reflects the costs of a sicker-than-average person.
B)   the price of health insurance is too low, relative to the socially-optimal price.
C)   people in average health may be encouraged to buy too much health insurance, relative to the socially-optimal quantity.
D)   the Condorcet Paradox suggests that people who are sicker than average will ultimately buy more health insurance.E) B) and D)
F) C) and D)

Question 8

In the real world, people always behave rationally when making economic decisions.

Accepted Answer

A) True 
 B)False

Question 9

People seem to naturally engage in delayed gratification and they tend to follow through on plans made today to do something unpleasant in the future.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is an example of an adverse selection problem?

Accepted Answer

A)   A customer purchases four apples, two of which are bruised.
B)   A card shop puts its Halloween merchandise on sale after Halloween.
C)   A young worker is fired after she is late for work three times in one month.
D)   A man whose father had a heart attack wants to increase his life insurance coverage.E) None of the above
F) A) and B)

Question 11

William is preparing to study for the economics final exam. William is happy to get a second-class honours degree, even though he could likely earn a first-class honours degree if he would study harder. William is a

Accepted Answer

A)   rational maximizer.
B)   satisficer.
C)   agent
D)   screener.E) B) and C)
F) All of the above

Question 12

A mother gives her teenage daughter two choices: spend 20 minutes cleaning her room now or spend 25 minutes cleaning her room tomorrow. The same mother gives her same daughter two additional choices: clean out the garage for 20 minutes next Tuesday or 25 minutes next Wednesday. What are her likely choices?

Accepted Answer

The daughter will likely choose to clean...

Question 13

The field of behavioural economics builds a more subtle and complex model of economic behavior using insights from

Accepted Answer

A)   physics.
B)   biology.
C)   psychology.
D)   anthropology.E) A) and B)
F) A) and C)

Question 14

Which of the following is not an example of signalling?

Accepted Answer

A)   screening
B)   advertising
C)   getting an education
D)   gift givingE) B) and C)
F) All of the above

Question 15

Employers may pay higher than equilibrium wages to avoid moral hazard in the employment relationship by raising the cost of shirking.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is a response to people's inconsistent behaviour over time?

Accepted Answer

A)   all of these answers
B)   forced contributions to a retirement plan
C)   year-end bonuses
D)   efficiency wagesE) B) and D)
F) All of the above

Question 17

The principal-agent problem arises because of

Accepted Answer

A)   the firm's motive for profit maximization.
B)   the salary differential between management and labourers.
C)   the structure of the market in which the firm operates.
D)   conflicting interests between a principal and an agent.E) A) and C)
F) All of the above

Question 18

John's friend dies of a sudden heart attack. John rushes to his doctor for an expensive physical examination. This response demonstrates that people:

Accepted Answer

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

Question 19

Which of the following would be an example of a principal trying to deal with a moral hazard problem?

Accepted Answer

A)   The parents of an infant secretly place video cameras in their house before the baby-sitter arrives.
B)   An insurance company checks police records to determine if its policyholders have received traffic citations.
C)   An employer examines his workers' output on a daily basis.
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 20

Identify and explain the two basic types of problems that arise when there is asymmetric information.

Accepted Answer

The two basic types of problems are (1) ...

Exam 12: Information and Behavioural Economics

People seem to naturally engage in delayed gratification and they tend to follow through on plans made today to do something unpleasant in the future.

Correct Answer
verified

In the real world, people always behave rationally when making economic decisions.

Correct Answer
verified

Which of the following is not an example of signalling?

Correct Answer
verified

The ultimatum game reveals that

Correct Answer
verified

Which of the following relationships involves asymmetric information?

Correct Answer
verified

The field of behavioural economics builds a more subtle and complex model of economic behavior using insights from

Correct Answer
verified

Which of the following would be an example of a principal trying to deal with a moral hazard problem?

Correct Answer
verified

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

Correct Answer
verified

Because people with hidden health problems are more likely to buy health insurance than are other people,

Correct Answer
verified

Identify and explain the two basic types of problems that arise when there is asymmetric information.

Correct Answer
verified
The two basic types of problems are (1) ...
View Answer

How does the prospect theory work?

Correct Answer
verified
Prospect theory suggests that when prese...
View Answer

Employers may pay higher than equilibrium wages to avoid moral hazard in the employment relationship by raising the cost of shirking.

Correct Answer
verified

Which of the following help explain why firms pay bonuses to workers during particularly profitable years to prevent workers from becoming disgruntled? People:

Correct Answer
verified

John's friend dies of a sudden heart attack. John rushes to his doctor for an expensive physical examination. This response demonstrates that people:

Correct Answer
verified

Which of the following is an example of an adverse selection problem?

Correct Answer
verified

The principal-agent problem arises because of

Correct Answer
verified

Which of the following is a response to people's inconsistent behaviour over time?

Correct Answer
verified

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

Correct Answer
verified

William is preparing to study for the economics final exam. William is happy to get a second-class honours degree, even though he could likely earn a first-class honours degree if he would study harder. William is a

Correct Answer
verified

Correct Answer
verified
The daughter will likely choose to clean...
View Answer

Exam 12: Information and Behavioural Economics

People seem to naturally engage in delayed gratification and they tend to follow through on plans made today to do something unpleasant in the future.

Correct AnswerverifiedShow Answer

In the real world, people always behave rationally when making economic decisions.

Correct AnswerverifiedShow Answer

Which of the following is not an example of signalling?

Correct AnswerverifiedShow Answer

The ultimatum game reveals that

Correct AnswerverifiedShow Answer

Which of the following relationships involves asymmetric information?

Correct AnswerverifiedShow Answer

The field of behavioural economics builds a more subtle and complex model of economic behavior using insights from

Correct AnswerverifiedShow Answer

Which of the following would be an example of a principal trying to deal with a moral hazard problem?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Because people with hidden health problems are more likely to buy health insurance than are other people,

Correct AnswerverifiedShow Answer

Identify and explain the two basic types of problems that arise when there is asymmetric information.

Correct AnswerverifiedThe two basic types of problems are (1) ...View AnswerShow Answer

How does the prospect theory work?

Correct AnswerverifiedProspect theory suggests that when prese...View AnswerShow Answer

Employers may pay higher than equilibrium wages to avoid moral hazard in the employment relationship by raising the cost of shirking.

Correct AnswerverifiedShow Answer

Which of the following help explain why firms pay bonuses to workers during particularly profitable years to prevent workers from becoming disgruntled? People:

Correct AnswerverifiedShow Answer

John's friend dies of a sudden heart attack. John rushes to his doctor for an expensive physical examination. This response demonstrates that people:

Correct AnswerverifiedShow Answer

Which of the following is an example of an adverse selection problem?

Correct AnswerverifiedShow Answer

The principal-agent problem arises because of

Correct AnswerverifiedShow Answer

Which of the following is a response to people's inconsistent behaviour over time?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

William is preparing to study for the economics final exam. William is happy to get a second-class honours degree, even though he could likely earn a first-class honours degree if he would study harder. William is a

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe daughter will likely choose to clean...View AnswerShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
verified
The two basic types of problems are (1) ...
View Answer

Correct Answer
verified
Prospect theory suggests that when prese...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The daughter will likely choose to clean...
View Answer