Problem 1
In which of the following situations is an information asymmetry likely to cause problems? \(\left[\mathrm{LO}_{10.1}\right]\) a. Cab drivers know the shortest route to any destination better than their passengers do. b. Managers can't always supervise members of their sales staff, who work on commission. (That is, staff members receive a percentage of the total value of the sales they make.)
Problem 2
In which of the following situations is an information asymmetry likely to cause problems? [LO 10.1] a. Parents know more than their children about how to write a good college application. b. People who book hotel rooms online know less about the quality of the room they are reserving than the hotel's management.
Problem 3
Which of the following situations are likely to involve adverse selection? [LO 10.2] a. After receiving an emergency call during class, a professor leaves students unsupervised for the rest of the period. b. A course has a reputation for being an easy A, even though after the term begins, students realize that it isn't. c. A course is a requirement for physics majors but an elective for biology majors.
Problem 4
In which of the following situations is adverse selection not a concern? [LO 10.2] a. A company offers employees the opportunity to purchase group health insurance. b. A company requires employees the opportunity to purchase group health insurance. c. The health insurance plan does not include dental care.
Problem 6
In which of the following government policies is moral hazard not a concern? [LO 10.3\(]\) a. Government provides disaster relief for homeowners who lose their homes in a flood. b. Government provides unemployment insurance when workers are laid off. c. Government raises taxes to pay for social services. d. Government requires hospitals to treat anyone who comes to the emergency room, regardless of insurance status.
Problem 7
Say whether each of the following situations involves screening or signaling. [LO 10.4\(]\) a. Auto shops and motels advertise that they are AAA-approved. b. Employers check interviewees' Facebook or MySpace profiles before hiring one of them. c. Applicants must pass an exam before becoming eligible for a civil service position. d. People wear expensive clothing with large brand names or logos.
Problem 9
Consider the effect of reputation and say whether you are likely to be treated better in scenario \(a\) or scenario \(b\). [LO 10.5\(]\) a. You tell an auto mechanic that you have just moved to town. b. You tell an auto mechanic that you are moving out of town.
Problem 10
Consider the effect of reputation and say whether you are likely to be treated better in scenario \(a\) or scenario \(b\). [LO 10.5\(]\) a. You are purchasing your car from an individual who advertised it on craigslist. b. You are purchasing your car from a local dealership.
Problem 11
In college admissions, which of the following are examples of statistical discrimination? Choose all that apply. [LO 10.6\(]\) a. A college has minimum required scores on standardized tests. b. A college is an all-women's school. c. A college uses high-school GPA to rank students for scholarship offers. d. A college requires three letters of recommendation.
Problem 12
In a market for car insurance, which of the following are examples of statistical discrimination? Choose all that apply. [LO 10.6\(]\) a. Premiums are adjusted based on the zip code of the insured. b. Premiums are adjusted based on the color of the car. c. Premiums are adjusted based on the driving record of the insured. d. Premiums are adjusted based on the model of the car.
