FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 20: Uncertainty and Information

Show Answer

Share

---

All types

Filters

Study Flashcards

Question 61

Multiple Choice

Review LaterAdd Note

Review Later

Signals are believable when the cost of sending a

A) false signal is known to be low.
B) false signal is known to be high.
C) true or false signal is known to be low.
D) true signal is known to be high.

E) All of the above
F) None of the above

Correct Answer

verified

Show Answer

Question 62

Multiple Choice

Review LaterAdd Note

Review Later

Suppose that there are only two types of used cars, peaches and lemons. Peaches are worth $10,000, and lemons are worth $4,000. If the market is such that only lemons are sold, then used cars are

A) experience goods and the used car market has effective signals.
B) experience goods and the used car market lacks effective signals.
C) not experience goods and the used car market has effective signals.
D) not experience goods and the used car market lacks effective signals.

E) A) and D)
F) None of the above

Correct Answer

verified

Show Answer

Question 63

Multiple Choice

Review LaterAdd Note

-Bobby is offered a job as a salesperson in which there is a 50 percent chance that he will make $2,000 and a 50 percent chance that he will make $10,000. Bobby's utility of wealth curve is shown in the figure above. What is Bobby's expected income from taking this job?

If Ben becomes less likely to buy smoke detectors after he has fire insurance, he is illustrating

Insurance works because

Because Don has health insurance, he is more likely to see the doctor when he has a cold. This is an example of

Mortgage insurance protects lenders when a borrower defaults by making up any shortfall needed to repay the loan if the sale of the property doesn't cover the debt. Federally regulated lenders must have mortgage insurance on loans where the buyer's down payment is less than 20 per cent of the price. In this example, what signal do potential homeowners give to indicate they are low-risk?

Used car buyers believe a car is good quality when the seller signals the car's quality by offering a warranty because

What is expected utility?

The slope of the utility of wealth curve of a risk-averse person

-John's utility of wealth curve is shown in the above figure. He currently has wealth of $20,000. If the state lottery offers a 1 in 10,000 chance of winning $10,000, John will

-Beachcomber Beatrice spent her entire wealth of $100,000 to build a beach house on the Gulf of Mexico. There is a 10 percent chance that the house will be destroyed by a hurricane. Beatrice's utility of wealth schedule is given in the table above. What is the maximum amount that Beatrice would be willing to pay for an insurance policy that pays $100,000 if her beach house is destroyed by a hurricane?

-Bobby is offered a job as a salesperson in which there is a 50 percent chance that he will make $2,000 and a 50 percent chance that he will make $10,000. Bobby's utility of wealth curve is shown in the figure above. What is Bobby's expected utility from taking this job?

-Lucy works as a college instructor for a fixed annual salary of $30,000. She is considering quitting this job and becoming a real estate broker. Lucy believes that as a realtor she has a 40 percent chance to make $60,000 per year and a 60 percent chance to make $25,000 a year. The figure above shows Lucy's total utility of wealth curve (U) . Lucy's expected annual income from real estate brokerage is

Adriana wants to try working as an independent contractor this summer. She has a 50 percent chance that she will make $9,000 and 50 percent chance that she will make nothing. What's Adriana's expected income?

In the market for automobile insurance, adverse selection implies that

Hostess Brands is selling off its assets after liquidation. A potential buyer for the Twinkies brand has found that the total revenue will be $3 billion a year if the brand is managed well and $1 billion a year if the brand is managed poorly. There is .6 (or 60 percent) chance of managing the brand well and a .4 (or 40 percent) chance of managing the brand poorly. What is the expected total revenue?

The International Maritime Bureau said the waters off Somalia are the world's most dangerous, accounting for nearly a third reported pirate attacks worldwide between January and September 2008. Suppose all boats are insured to $100,000 and pay a premium of $10,000 each. Suppose 10 out of 100 boats are attacked by pirates and these 10 file claims with their insurance. If the insurance company's only costs are the claims it must pay, has the insurance company earned an economic profit?

In the market for automobile insurance, moral hazard implies that

Erika's utility with $3,000 of wealth is 6,000 and her utility with $3,001 of wealth is 6,005. Her marginal utility from gaining the additional $1 of wealth is ________.