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Focused topic practice

asymmetric information MCQs

Practise focused asymmetric information questions with marked answers for exam preparation and subject revision.

asymmetric information Mcqs
1. Nicole wants to avoid buying a car that is a lemon. She takes a car she would like to buy to her mechanic before she purchases it. This is known as ?
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A. adverse selection

B. signaling

C. moral hazard

D. screening
2. Markus is a travelling salesman for an apparel company. In this employment relationship, Markus is the ?
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A. screener

B. principle

C. signaler

D. agent
3. Refer to Figure 1 What percent of the population vote for A when the choice is between A and B ?
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A. 35 percent

B. 25 percent

C. 40 percent

D. 60 percent

E. 75 percent

4. Which of the following is a response to Peoples inconsistent behavior over time ?
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A. efficiency wages

B. year-end bonuses

C. all of these answers

D. forced contributions to a retirement plan
5. Jamils 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 ?
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A. hidden actions

B. adverse selection

C. moral hazard

D. adverse selection

6. Suppose that 40 percent of the voting population wish to spent Rs1,000 for artwork in City Hall, 25 percent wish to spent Rs20,000 and 35 percent wish to spend Rs 22,000 What is the median preferred outcome, the average preferred outcome and the modal preferred outcome ?
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A. Rs1,000; Rs14,333; Rs1,000

B. Rs1,000; Rs20,000; Rs22,000

C. Rs20,000; Rs20,000; Rs22,000

D. Rs20,000; Rs13,100; Rs1,000
7. Which of the following must be true about a signal that is used to reveal private information in order for the signal to be effective ?
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A. It must be as seen on TV

B. It must be free to the signaling party

C. It must be costly to the signaling party but less costly to the party with higher-quality product

D. It must be applied to an inexpensive product

8. Which of the following is not true about how people make decisions ?
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A. People are sometimes too sure of their own abilities

B. People are always rational maximizers

C. All of these answers are actually true statements about how people make decisions.

D. People are reluctant to change their minds in the face of new information

E. people give too much weight to a small number of vivid observations

9. Which of the following is an example of a signal that is used to reveal private information ?
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A. Josephine earns her MBA from the Harvard Business School

B. Lexus advertises its cars during the football World Cup Final.

C. All of these answers are correct

D. Enzo carefully chooses a special gift for Josephine

10. Which of the following best demonstrates the problem of moral hazard ?
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A. Josephine doesnt buy health insurance because it is too expensive, and she is healthy

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

C. Enzo drives more recklessly after he buys car insurance

D. Fatima chooses to attend a well-respected college

11. 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 ?
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A. Jan-99

B. 99/1

C. There is no rational solution

D. 50/50

E. 75/25

12. Which of the following is not a method firms use to avoid the moral hazard problem in the employment relationship ?
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A. They put hidden video cameras in the workplace

B. They pay employees with delayed compensation such as a year-end bonus

C. They pay above equilibrium wages

D. They buy life insurance on their workers
13. hich of the following is not a property required of a perfect voting system ?
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A. transitivity

B. no dictators

C. independence of irrelevant

D. The median voter always wins
14. Which of the following is true under pairwise majority rule if people vote for the outcome closest to their most preferred outcome ?
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A. The outcome preferred by the median voter wins

B. The average preferred outcome wins

C. The outcome preferred by the greatest number of voters wins.

D. There is no clear winner due to Arrows Impossibility Theorem.

15. Which of the following help explain why firms pay bonuses to workers during particularly profitable years to prevent workers from becoming disgruntled ?
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A. people are rational maximizers

B. People are inconsistent over time

C. People care about fairness

D. People are reluctant to change their minds

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

B. transitivity

C. independence

D. unanimity

17. Jamils friend dies of a sudden heart attack. Jamil rushes to his doctor for an expensive physical examination. This response demonstrates that ?
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A. People easily change their minds when confronted with new information

B. People give too much weight to a small number of vivid observations

C. People enjoy going to the doctor

D. People tend to plan ahead and follow through on their plans