Question : Tom wants to buy a used iPhone from an online : 1377564

Tom wants to buy a used iPhone from an online exchange site. He expects 50% of the used phones to have some defect. He is willing to pay up to $80 for a phone without any defect and $0 for a defective phone. Note that an owner of a good-quality iPhone is likely to sell his phone if he gets a price of $70.

20) Refer to the scenario above. Which of the following problems is likely to occur in this market?

A) The fallacy of composition

B) Moral hazard

C) Adverse selection

D) The free-rider problem

21) Refer to the scenario above. In this case, how much should Tom pay for a used iPhone?

A) $80

B) $40

C) $60

D) $0

22) Refer to the scenario above. Tom is likely to get a defective phone if:

A) he pays an amount of $80.

B) he pays an amount of $100.

C) he pays an amount of $40.

D) he pays an amount of $120.

23) Refer to the scenario above. How much should he pay for the painting if he thinks that there is a 70% chance that the painting he is buying is original?

A) $50,000

B) $35,000

C) $70,000

D) $15,000

24) Refer to the scenario above. If the curator values the painting at $45,000, which of the following problems is likely to arise?

A) Adverse selection

B) Free-rider problem

C) The paradox of thrift

D) The tragedy of the commons

25) A factory urgently needs to hire some workers. The factory-owner is willing to pay a wage of $15 per hour to responsible workers and is unwilling to hire workers who require constant monitoring. On average, he expects 5 out of 10 workers who have come for interview to be sincere. How much should he offer to pay to the workers he hires?

A) $15 per hour

B) $7.50 per hour

C) $10 per hour

D) $8 per hour

26) In which of the following markets are buyers likely to have private information?

A) The market for used cars

B) The market for fresh fruits and vegetables

C) The market for banking services

D) The market for health insurance

27) Adverse selection arises in the health insurance market because ________.

A) buyers have private information

B) sellers have private information

C) different firms provide different insurance schemes

D) the number of buyers and sellers is large

28) Which of the following is a problem that arises in a health insurance market?

A) There are a large number of buyers of various insurance programs.

B) There exists a fierce competition between the insurance providers

C) A disproportionate number of high-risk individuals are attracted to buy insurance.

D) Only risk-averse individuals buy insurance.

29) Health insurance markets are likely to attract a disproportionate number of ________ individuals.

A) high-risk

B) risk-seeking

C) low-risk

D) risk-averse

30) Health insurance companies often charge high premiums because ________.

A) they expect to attract high-risk individuals

B) they expect to attract risk-averse individuals

C) they expect to attract low-income individuals

D) they expect to attract risk-neutral individuals