Asymmetric Information MCQs

Option A: people are rational maximizers

Option B: People are reluctant to change their minds

Option C: People are inconsistent over time

Option D: People care about fairness

Correct Answer: People care about fairness ✔

Option A: people give too much weight to a small number of vivid observations

Option B: People are sometimes too sure of their own abilities

Option C: All of these answers are actually true statements about how people make decisions.

Option D: People are always rational maximizers

Correct Answer: People are always rational maximizers ✔

Option A: Rs20,000; Rs20,000; Rs22,000

Option B: Rs1,000; Rs14,333; Rs1,000

Option C: Rs20,000; Rs13,100; Rs1,000

Option D: Rs1,000; Rs20,000; Rs22,000

Correct Answer: Rs20,000; Rs13,100; Rs1,000 ✔

Option A: Josephine doesn’t buy health insurance because it is too expensive, and she is healthy

Option B: A life insurance company forces Enzo to have a medical examination prior to selling him insurance

Option C: Enzo drives more recklessly after he buys car insurance

Option D: Fatima chooses to attend a well-respected college

Correct Answer: Enzo drives more recklessly after he buys car insurance ✔

Option A: It must be “as seen on TV”

Option B: It must be free to the signaling party

Option C: It must be costly to the signaling party but less costly to the party with higher-quality product

Option D: It must be applied to an inexpensive product

Correct Answer: It must be costly to the signaling party but less costly to the party with higher-quality product ✔

Option A: screening

Option B: signaling

Option C: moral hazard

Option D: adverse selection

Correct Answer: screening ✔

Option A: all of these answers

Option B: forced contributions to a retirement plan

Option C: year-end bonuses

Option D: efficiency wages

Correct Answer: forced contributions to a retirement plan ✔

Option A: People give too much weight to a small number of vivid observations

Option B: People easily change their minds when confronted with new information

Option C: People enjoy going to the doctor

Option D: People tend to plan ahead and follow through on their plans

Correct Answer: People give too much weight to a small number of vivid observations ✔

Option A: There is no rational solution

Option B: 75/25

Option C: 99/1

Option D: 1/99

Correct Answer: 99/1 ✔

Option A: The average preferred outcome wins

Option B: There is no clear winner due to Arrow’s Impossibility Theorem.

Option C: The outcome preferred by the median voter wins

Option D: The outcome preferred by the greatest number of voters wins.

Correct Answer: The outcome preferred by the median voter wins ✔

Option A: The median voter always wins

Option B: no dictators

Option C: independence of irrelevant

Option D: transitivity

Correct Answer: The median voter always wins ✔

Option A: 75 percent

Option B: 35 percent

Option C: 60 percent

Option D: 40 percent

Correct Answer: 60 percent ✔

Option A: transitivity

Option B: impossibility

Option C: independence

Option D: unanimity

Correct Answer: transitivity ✔

Option A: They pay employees with delayed compensation such as a year-end bonus

Option B: They buy life insurance on their workers

Option C: They pay above equilibrium wages

Option D: They put hidden video cameras in the workplace

Correct Answer: They buy life insurance on their workers ✔

Option A: Enzo carefully chooses a special gift for Josephine

Option B: Josephine earns her MBA from the Harvard Business School

Option C: Lexus advertises its cars during the football World Cup Final.

Option D: All of these answers are correct

Correct Answer: All of these answers are correct ✔

Option A: agent

Option B: principle

Option C: screener

Option D: signaler

Correct Answer: agent ✔

Option A: hidden actions

Option B: adverse selection

Option C: moral hazard

Option D: adverse selection

Correct Answer: hidden actions ✔