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.Management Sciences
Category: Asymmetric Information
Which of the following is not a method firms use to avoid the moral hazard problem in the employment relationship ?
A. They pay employees with delayed compensation such as a year-end bonus
B. They buy life insurance on their workers
C. They pay above equilibrium wages
D. They put hidden video cameras in the workplace
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 ?
A. Rs20,000; Rs20,000; Rs22,000
B. Rs1,000; Rs14,333; Rs1,000
C. Rs20,000; Rs13,100; Rs1,000
D. Rs1,000; Rs20,000; Rs22,000
Jamil’s 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 ?
A. hidden actions
B. adverse selection
C. moral hazard
D. adverse selection
Which of the following is true under pairwise majority rule if people vote for the outcome closest to their most preferred outcome ?
A. The average preferred outcome wins
B. There is no clear winner due to Arrow’s Impossibility Theorem.
C. The outcome preferred by the median voter wins
D. The outcome preferred by the greatest number of voters wins.
Which of the following best demonstrates the problem of moral hazard ?
A. Josephine doesn’t 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
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 ?
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
Refer to Figure 1 What percent of the population vote for A when the choice is between A and B ?
A. 75 percent
B. 35 percent
C. 60 percent
D. 40 percent
E. 25 percent
Which of the following help explain why firms pay bonuses to workers during particularly profitable years to prevent workers from becoming disgruntled ?
A. people are rational maximizers
B. People are reluctant to change their minds
C. People are inconsistent over time
D. People care about fairness
Which of the following is an example of a signal that is used to reveal private information ?
A. Enzo carefully chooses a special gift for Josephine
B. Josephine earns her MBA from the Harvard Business School
C. Lexus advertises its cars during the football World Cup Final.
D. All of these answers are correct
Which of the following is not true about how people make decisions ?
A. people give too much weight to a small number of vivid observations
B. People are sometimes too sure of their own abilities
C. All of these answers are actually true statements about how people make decisions.
D. People are always rational maximizers
E. People are reluctant to change their minds in the face of new information
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