ECON1001 Study Guide - Quiz Guide: Imperfect Competition, Adverse Selection, Moral Hazard

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14 Jun 2020

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Adverse selection is an information-related market failure; specifically, asymmetric information: where one of the market has more information than the other. The correct answer is: one side of the market has more information than the other. Moral hazard is where someone else picks up the losses while you keep the gains. The correct answer is: a consumer or producer does not have a good incentive to guard against risk or reduce cost because they are protected from consequences or do not pay the bills. While it often involves moral hazard, a principle-agent problem is more specifically about a situation where someone in the employ of somebody else has different desires than their employer. The correct answer is: someone acting on behalf of another person does not have the same interests as that person. Select one: imperfect information, imperfect competition, externalities, public goods. We"ve covered all the other market failures except imperfect information.

Related Questions

1. What is the reason for the existence of asymmetric information?

a. Asymmetric information exists when adverse selection leads to moral hazard.

b. Asymmetric information exists when one party to an economic transaction has less information than the other party.

c. Asymmetric information exists when parties to an economic transaction must pay different prices to obtain the same information.

d. Asymmetric information exists when people who have insurance change their actions because of the insurance.

2a)

A market in which there are neither external benefits nor external costs is:

Select one:

a. efficient.

b. inefficient.

c. efficient and equitable.

d. impossible.

2b)

According to the special-interest theory of government, government officials and policymakers:

Select one:

a. are assumed to maximize social good.

b. tend to listen to small groups of people who contribute money to their political campaigns.

c. manage resources to maximize efficiency.

d. have a strong incentive to ensure that society's members equally benefit from a project.

2c)

Scientific research is subsidized by the government because

Select one:

a. it yields benefits to consumers and producers who did not participate in the research.

b. researchers are under-paid by private firms, so the government must make up the difference.

c. much scientific research takes place at state-funded universities.

d. scientific research has no market value so would not be undertaken without government intervention.

2d)

The forces of supply and demand will provide a quantity that is

Select one:

a. less than the efficient quantity if a good generates external benefits.

b. more than the efficient quantity if a good generates external benefits.

c. exactly the efficient quantity if a good generates external benefits.

d. either more than or less than the efficient quantity if a good generates external benefits. It is impossible to know whether it will be too much or too little without more information.

peachmosquito288

Question 1

The amount of profit that can be achieved using uniform pricing is __________ the profit that can be achieved from price discrimination because of _______.

Select one:

a. greater than; the cost of trying to determine every single consumer's individual demand (willingness to pay) is prohibitively expensive.

b. less than; uniform pricing is more costly so the ATC and AVC curves are higher than they are under price discrimination.

c. equal to; the TR and TC curves are equivalent under either pricing scheme, so there is no profit advantage to either scheme.

d. less than; total demand includes people who would be willing to pay more than, as well as less than, the uniform market price.

Question 2

A firm selling in two markets is practicing price discrimination:

Select one:

a. when it refuses to sell the good to some group of consumers.

b. anytime it charges different consumers different prices.

c. when it charges the same price to different consumers as long as they differ in their demand for the good.

d. when it is charging different consumers, different prices, and the price difference is not based upon cost differences.

Question 3

To successfully practice price discrimination:

Select one:

a. consumers in two separate markets must have identical demand.

b. the firm must possess market power.

c. it must be easy for consumers in one market to sell to consumers in the other market.

d. the firm must be a pure monopoly.

Question 4

If it could practice first-degree price discrimination, a firm with market power could earn:

Select one:

a. its typical monopoly profit as well as the area which, under uniform pricing, would represent the deadweight loss associated with market power.

b. an area half the size of its monopoly power under uniform pricing.

c. its typical monopoly profit as well as the area which, under uniform pricing, would represent consumer surplus.

d. its typical monopoly profit as well as the area which, under uniform pricing, would represent consumer surplus and the deadweight loss associated with market power.

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ECON1001 Study Guide - Quiz Guide: Imperfect Competition, Adverse Selection, Moral Hazard

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