Question : 16.1  Asymmetric Information 1) In a market with asymmetric information, ________. A) : 1377562

16.1  Asymmetric Information

1) In a market with asymmetric information, ________.

A) buyers tend to forget relevant information about the good being traded

B) buyers set the price of the good being traded

C) buyers and sellers have different information about the good being traded

D) buyers have very low bargaining power

2) In a market with ________, one side of the market has private information that is relevant for the other side.

A) asymmetric information

B) perfect competition

C) monopolistic competition

D) positive externalities

3) In a market with asymmetric information, a good is said to have hidden characteristics if:

A) the consumption of the good imposes an additional cost on the society.

B) the production of the good generates additional benefits to the society.

C) the seller offers secret discounts to some buyers.

D) the buyer or the seller observes something about the good which the other does not.

4) In a market with asymmetric information, hidden actions exist if:

A) the buyer or the seller takes actions that are relevant for but not observed by the other party.

B) the production or consumption of the good being transacted gives rise to positive externalities.

C) the production or consumption of the good being transacted gives rise to negative externalities.

D) the production of the good being transacted involves a huge opportunity cost.

5) ________ occurs when one agent in a transaction knows about a hidden characteristic of a good.

A) The free-rider problem

B) The tragedy of the commons

C) Adverse selection

D) Moral hazard

6) You went to a craft show and paid an exorbitant price for an embroidered shawl which the seller said was hand-embroidered and had been imported from India. Several months later, you find a similar shawl in another showroom at a much lower price and found out that the one you bought was not an imported one. This is an example of ________ in the market for embroidered shawls.

A) asymmetric information

B) positive externalities

C) negative externalities

D) the free-rider problem

7) Claudia went to a department store to buy a few things for her new house. She found out that several items in the store were on discount and decided to make the most of the deals offered. However, as she started using the things that she bought, she realized that many of these items were defective. This happened due to:

A) the presence of positive externalities.

B) the presence of negative externalities.

C) asymmetric information.

D) moral hazard.

8) Mr. Smith put his laptop up for sale. He is aware of the fact that the laptop malfunctions frequently. However, none of the potential customers who came to buy the laptop were able to find out the problem and one of them actually bought it at a remunerative price. This occurred due to ________.

A) the presence of asymmetric information

B) the presence of positive externalities

C) the presence of negative externalities

D) the selective retention of information by sellers

9) Information asymmetry in a market can lead to ________.

A) a market failure

B) the paradox of thrift

C) the free-rider problem

D) a tragedy of the commons

10) In a market with information asymmetry, gains from trade occur if:

A) the value of the good to the seller is greater than its value to the buyer.

B) the value of the good to the buyer is greater than its value to the seller.

C) the variable cost of producing the good is zero.

D) the opportunity cost of consuming the good is zero.