Question 1 “It doesn’t hurt to get more information . . .” i

Homework Assistance Economics Question 1 “It doesn’t hurt to get more information . . .” i

Economics

Question 1 “It doesn’t hurt to get more information . . .” i

Question 1 “It doesn’t hurt to get more information . . .” is good advice Answer … Show more Question 1 “It doesn’t hurt to get more information . . .” is good advice Answer especially when the opportunity cost of acquiring the information is high when information is less than perfect only if the marginal benefit of information is greater than the marginal cost of information only if the marginal benefit of information is equal to the marginal cost of information only if the marginal benefit of information is less than the marginal cost of information 2 points Question 2 A principal-agent problem arises when Answer only less-qualified workers apply for a job a firm must find a proxy for unobservable qualities needed in employees potential employees have more information about their own productivity than do prospective employers a customer knows little about the service provided by a business a customer knows little about the service provided by a business and is, therefore, given poor service 2 points Question 3 Adverse selection is a situation in which one party, as a result of a contract, has an incentive to alter their behavior in a way that harms the other party to the contract. Answer True False 2 points Question 4 An IOU reflecting the corporation’s promise to pay the holder a fixed sum of money at a designated maturity date plus an annual interest payment until maturity is Answer a bond a stock certificate a prospectus a golden parachute an underwriting note 2 points Question 5 An example of screening job applicants is Answer listing years of education on résumés providing college transcripts sending in letters of recommendation dressing in a suit for interviews checking résumés for spelling and typographical errors 2 points Question 6 Compared to the present value of a high school education, the present value of at least a college education is Answer 100 times as great nearly double the same about half Present value cannot be used to analyze education 2 points Question 7 For which of the following goods is the marginal benefit of search likely to be greatest? Answer a toaster an apple a radio a tube of toothpaste a color TV 2 points Question 8 If Arnold has a positive rate of time preference, he desires to Answer save in case of inflation consume now rather than later invest in stocks and bonds invest in education plan for retirement 2 points Question 9 If a firm experiences economies of scope, per unit production costs fall as it produces more than one kind of product. Answer True False 2 points Question 10 If a firm that experiences economies of scope doubles its production of an item, its costs will less than double. Answer True False 2 points Question 11 If consumers decide to increase their rate of saving, the Answer supply of loanable funds will decrease supply of loanable funds will increase demand for loanable funds will decrease demand for loanable funds will increase interest rate will increase 2 points Question 12 If the market interest rate increases, then Answer the cost of borrowing increases and so saving falls the opportunity cost of consuming a good in the future increases and saving, therefore, increases the opportunity cost of consuming a good in the future increases and saving, therefore, falls the reward for saving diminishes and so present consumption increases the reward for saving increases and so saving increases 2 points Question 13 In which of the following situations is the principal-agent problem least likely to occur? Answer a hospital stay a doctor’s visit a bartender serves you at the bar your TV is repaired a stockbroker calls with financial advice 2 points Question 14 Lemon laws are an attempt to reduce __________ in used car markets. Answer symmetrical information adverse selection natural selection moral hazard the winner’s curse 2 points Question 15 One result of asymmetric information in the market for bank loans is that Answer few loans are offered few bad loans are made more bad loans than good loans may be made lenders benefit at the expense of borrowers the interest on good loans will be higher than otherwise 2 points Question 16 One way to overcome the problem of adverse selection in labor markets is to Answer use signaling and screening advertise job openings widely contract out the hiring function pay above average wages pay below average wages 2 points Question 17 Savers have less incentive to care what their bank is doing with their money because their deposits are federally insured. This is a problem of Answer nominal interest adverse selection moral hazard the winner’s curse a positive externality 2 points Question 18 The marginal benefit of acquiring additional information tends to Answer be zero if the marginal cost of information is zero increase and then decrease as additional information is obtained be smaller, the smaller the quantity of information the individual already has obtained increase as additional information is obtained decrease as additional information is obtained 2 points Question 19 The present value of a given payment will be lower Answer if the payment comes sooner than expected the lower the prevailing interest rate the further in the future the payment is to be received the sooner the payment is to be received if the payment is made in cash 2 points Question 20 The principal-agent problem arises because of Answer natural selection diminishing marginal returns hidden actions the winner’s curse hidden characteristics 2 points Question 21 The publisher that paid Arthur Arthur, the popular novelist, a $2 million advance on his recent novel, which sold only 42 copies, fell victim to Answer moral hazard an authority relation the winner’s curse the principal-agent problem adverse selection 2 points Question 22 The winner’s curse is more likely when the value of a good at auction is common knowledge. Answer True False 2 points Question 23 Which of the following is not related to adverse selection in insurance markets? Answer An insurance company has no way of distinguishing among applicants An insurance company must charge a higher price to applicants who are good health risks The price of insurance is attractive to poor health risks, but not to good ones The insured group becomes less healthy on average Because of the relative unhealthiness of the insured group, rates must rise 2 points Question 24 Which of the following would cause a rightward shift of the demand for loanable funds curve? Answer a fall in the marginal rate of return on investment a fall in the value of the marginal product of capital a rise in the marginal product of capital a fall in the investment demand curve a fall in the price of the product capital produces • Show less

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