Question :
61) In the 1973 movie Save the Tiger, Jack Lemmon : 1245127
61) In the 1973 movie Save the Tiger, Jack Lemmon plays Harry Stoner, the CEO of a clothing manufacturer whose business has fallen on hard times. At one point in the movie, Stoner convinces his partner to hire someone to burn one of their buildings to collect on their insurance policy. What term refers to the information problem that led the insurance company to sell a policy for this building to Stoner and his partner?
A) rational ignorance
B) the principal-agent problem
C) adverse selection
D) moral hazard
62) Two consequences of asymmetric information are adverse selection and moral hazard. An important distinction between the two is
A) adverse selection exists prior to the completion of a transaction while moral hazard occurs after the transaction is completed.
B) moral hazard exists prior to the completion of a transaction while adverse selection occurs after the transaction is completed.
C) adverse selection leads to an inefficient quantity while moral hazard leads to an efficient quantity.
D) moral hazard leads to an inefficient quantity while adverse selection leads to an efficient quantity.
63) The difference between adverse selection and moral hazard is that
A) moral hazard happens at the time parties enter into a transaction; adverse selection occurs after the transaction takes place.
B) adverse selection happens at the time parties enter into a transaction; moral hazard occurs after the transaction takes place.
C) moral hazard is the motive that is behind one party entering into a transaction with another party. Adverse selection refers to the other party being harmed by the transaction.
D) moral hazard refers to the likelihood that a transaction will lead one party to be better off at the expense of the other party to the transaction. Adverse selection refers to the consequences of the transaction after it has occurred.
64) ________ occurs when one party takes advantage of having more information than another party about the attributes of the good or service they will exchange.
A) A negative externality
B) Moral hazard
C) A transaction cost
D) Adverse selection
65) ________ occurs when actions taken by one party to a transaction are different from what the other party expected at the time of the transaction.
A) Adverse selection
B) Risk aversion
C) Fraud
D) Moral hazard
66) Suppose that in a market for used cars, there are good used cars and bad used cars (lemons). Consumers are willing to pay as much as $6,000 for a good used car but only $1,000 for a lemon. Sellers of good used cars value their cars at $5,000 each and sellers of lemons value their cars at $800 each. Buyers cannot tell if a used car is reliable or is a lemon. Based on this information, what is the likely outcome in the market for used cars?
A) Both good used cars and lemons will sell for $4,500 each.
B) Only lemons will sell, for $800 each.
C) Both good used cars and lemons will sell for $1,000 each.
D) Most used cars offered for sale will be lemons.
67) Health insurance markets have a problem with insuring people who are “poor health risks” while many people who are “good health risks” do not buy insurance. This problem is an example of
A) moral hazard.
B) adverse selection.
C) market signaling.
D) asymmetric information.
68) Because of the ________ of vaccinations, economic efficiency would be improved if more people were vaccinated.
A) negative externality
B) positive externality
C) moral hazard
D) adverse selection
Figure 5-2
Figure 5-2 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations.
69) Refer to Figure 5-2. Marginal private benefit is represented by which curve?
A) D1
B) D2
C) Supply
D) All of the above represent marginal private benefit.
70) Refer to Figure 5-2. Marginal social benefit is represented by which curve?
A) D1
B) D2
C) Supply
D) All of the above represent marginal social benefit.
