21) In the used car market with no warranties, the equilibrium is a ________ and there is ________.
A) pooling equilibrium; inefficiency, partly because of oversupply of good cars
B) pooling equilibrium; inefficiency, partly because of oversupply of lemons
C) separating equilibrium; no inefficiency
D) separating equilibrium; inefficiency, partly because of oversupply of lemons
E) pooling equilibrium; no inefficiency
22) In the used car market with warranties, the market for lemons (poor quality used cars) is ________ and the market for good cars is ________.
A) efficient; efficient
B) inefficient because of oversupply; inefficient because of undersupply
C) inefficient because of oversupply; inefficient because of oversupply
D) efficient; inefficient because of undersupply
E) inefficient because of oversupply; efficient
23) In the used car market with warranties, the equilibrium is a ________ and there is ________.
A) pooling equilibrium; inefficiency, partly because of oversupply of good cars
B) pooling equilibrium; inefficiency, partly because of oversupply of lemons (poor quality used cars)
C) separating equilibrium; no inefficiency
D) separating equilibrium; inefficiency, partly because of oversupply of lemons (poor quality used cars)
E) pooling equilibrium; no inefficiency
24) In the used car market with warranties, the equilibrium is a ________ and the lemons problem is ________.
A) pooling equilibrium; solved
B) pooling equilibrium; unresolved
C) separating equilibrium; unresolved
D) separating equilibrium; solved
E) pooling equilibrium; possibly solved and possibly unresolved, depending on whether good used cars sell for a higher price than do lemons
25) Asymmetric information means that
A) the buyer must have information that the seller does not have.
B) the seller must have information that the buyer does not have.
C) the buyer and seller have the same information.
D) either the buyer has information that the seller does not have or the seller has information that the buyer does not have.
E) None of the above answers is correct.
26) The fact that people who know they are risky drivers are more likely to buy auto insurance reflects
A) adverse selection.
B) moral hazard.
C) a separating equilibrium.
D) signaling.
E) the lemons problem.
27) The lemons problem in the used car market is that
A) the price of a lemon is too high.
B) the price of a lemon is too low.
C) no lemons are bought and sold.
D) only lemons are bought and sold.
E) Both answers A and D are correct.
28) If buyers cannot assess the quality of used cars and there are no warranties,
A) only lemons are sold.
B) only good used cars are sold.
C) good cars are sold at a higher price than bad cars.
D) there is no adverse selection problem.
E) lemons and good cars sell for the same price.
29) JCPenney guarantees to refund a customer's money if the customer returns poorly made clothing. This guarantee is an example of
A) the adverse selection problem.
B) the moral hazard problem.
C) the cost of risk.
D) signaling.
E) a lemon problem.
30) In the used car market, with a pooling equilibrium the price of a lemon is ________ the price of a good used car and with a separating equilibrium the price of a lemon is ________ the price of a good used car.
A) less than; equal to
B) equal to; less than
C) equal to; more than
D) more than; more than
E) equal to; equal to
