Question 1

In the real world, people always behave rationally when making economic decisions.

Accepted Answer

A) True 
 B)False

Question 2

Asymmetric information is a problem that occurs when one person in a transaction knows more about what is going on than the other.

Accepted Answer

A) True 
 B)False

Question 3

Explain how the ultimatum theory works and its likely results.

Accepted Answer

Two volunteers are chosen and a coin tos...

Question 4

What is herd mentality?

Accepted Answer

Herd mentality is a tendency for people to make decisions which follow those of a larger group, in order to go with the herd rather than stand out alone. This may be part of social conformity. For example, purchasing your rugby team's new shirt every year maybe at odds with its true value (they are expensive to buy), but if most supporters are doing it then they all can't be wrong. Also you don't want to be left behind. This can apply to bull stock markets and help explain share price rises.

Question 5

How have insights from the field of psychology influenced the thinking of economists in recent years?

Accepted Answer

Insights from psychology have led some e...

Question 6

Effective signals

Accepted Answer

A)   convey useful information from informed parties to uninformed parties.
B)   impose little or no cost on the signaller.
C)   cannot be conveyed accurately when there is an information asymmetry.
D)   can be used by employers to alleviate the moral hazard problem in the workplace.E) B) and D)
F) B) and C) A

Question 7

To avoid the problem of adverse selection, insurance companies screen their prospective customers to discover hidden health problems.

Accepted Answer

A) True 
 B)False  True

Question 8

Which of the following is not a method firms use to avoid the moral hazard problem in the employment relationship? They:

Accepted Answer

A)   pay employees with delayed compensation such as a year-end bonus.
B)   buy life insurance on their workers.
C)   pay above equilibrium wages.
D)   put hidden video cameras in the workplace.E) B) and C)
F) All of the above

Question 9

What is the purpose of signalling?

Accepted Answer

Signalling is an action taken by an info...

Question 10

Which of the following help explain why firms pay bonuses to workers during particularly profitable years to prevent workers from becoming disgruntled? People

Accepted Answer

A)   are rational maximisers.
B)   are reluctant to change their minds.
C)   are inconsistent over time.
D)   care about fairness.E) C) and D)
F) B) and D)

Question 11

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? It must be:

Accepted Answer

A)   "as seen on TV."
B)   free to the signalling party.
C)   costly to the signalling party but less costly to the party with the higher-quality product.
D)   applied to an inexpensive product.E) A) and B)
F) C) and D)

Question 12

Explain and provide examples of what is meant by "asymmetric information."

Accepted Answer

Asymmetric information is present when t...

Question 13

Yusuf is planning to sell his home. In preparation for the sale, he paints all of the ceilings in his house to cover up water stains from his leaking roof so that potential buyers will be unaware of this problem. This is an example of

Accepted Answer

A)   moral hazard.
B)   screening.
C)   adverse selection.
D)   the principal-agent problem.E) A) and D)
F) None of the above

Question 14

A mother gives her teenage daughter two choices: spend 20 minutes cleaning her room now or spend 25 minutes cleaning her room tomorrow. The same mother gives her same daughter two additional choices: clean out the garage for 20 minutes next Tuesday or 25 minutes next Wednesday. What are her likely choices?

Accepted Answer

The daughter will likely choose to clean...

Question 15

The field of behavioural economics builds a more subtle and complex model of economic behaviour using insights from

Accepted Answer

A)   physics.
B)   biology.
C)   psychology.
D)   anthropology.E) B) and C)
F) A) and C)

Question 16

Which of the following is not an example of signalling?

Accepted Answer

A)   Screening.
B)   Advertising.
C)   Getting an education.
D)   Gift giving.E) B) and C)
F) A) and D)

Question 17

The fact that someone with a high risk of medical problems is more likely to buy a lot of health insurance is an example of something that will give rise to

Accepted Answer

A)   adverse selection.
B)   monitoring.
C)   moral hazard.
D)   irrational behaviour.E) A) and D)
F) A) and C)

Question 18

In the principal-agent relationship, the principal performs a task on behalf of the agent.

Accepted Answer

A) True 
 B)False

Question 19

Nicole wants to avoid buying a car with hidden defects. She takes a car she would like to buy to her mechanic before she purchases it. This is known as

Accepted Answer

A)   screening.
B)   signalling.
C)   moral hazard.
D)   adverse selection.E) A) and B)
F) None of the above

Question 20

In the ultimatum game, what split would be rational for both the person proposing the split and the person who must accept or reject the split?

Accepted Answer

A)   There is no rational solution.
B)   75/25.
C)   99/1.
D)   1/99.
E)   50/50.F) B) and D)
G) All of the above

Exam 12: Information and Behavioural Economics

In the real world, people always behave rationally when making economic decisions.

Correct Answer
verified

Asymmetric information is a problem that occurs when one person in a transaction knows more about what is going on than the other.

Correct Answer
verified

Explain how the ultimatum theory works and its likely results.

Correct Answer
verified
Two volunteers are chosen and a coin tos...
View Answer

What is herd mentality?

How have insights from the field of psychology influenced the thinking of economists in recent years?

Correct Answer
verified
Insights from psychology have led some e...
View Answer

Effective signals

Correct Answer
verified
A

To avoid the problem of adverse selection, insurance companies screen their prospective customers to discover hidden health problems.

Correct Answer
verified
True

Which of the following is not a method firms use to avoid the moral hazard problem in the employment relationship? They:

Correct Answer
verified

What is the purpose of signalling?

Correct Answer
verified
Signalling is an action taken by an info...
View Answer

Which of the following help explain why firms pay bonuses to workers during particularly profitable years to prevent workers from becoming disgruntled? People

Correct Answer
verified

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? It must be:

Correct Answer
verified

Explain and provide examples of what is meant by "asymmetric information."

Correct Answer
verified
Asymmetric information is present when t...
View Answer

Yusuf is planning to sell his home. In preparation for the sale, he paints all of the ceilings in his house to cover up water stains from his leaking roof so that potential buyers will be unaware of this problem. This is an example of

Correct Answer
verified

Correct Answer
verified
The daughter will likely choose to clean...
View Answer

The field of behavioural economics builds a more subtle and complex model of economic behaviour using insights from

Correct Answer
verified

Which of the following is not an example of signalling?

Correct Answer
verified

The fact that someone with a high risk of medical problems is more likely to buy a lot of health insurance is an example of something that will give rise to

Correct Answer
verified

In the principal-agent relationship, the principal performs a task on behalf of the agent.

Correct Answer
verified

Nicole wants to avoid buying a car with hidden defects. She takes a car she would like to buy to her mechanic before she purchases it. This is known as

Correct Answer
verified

In the ultimatum game, what split would be rational for both the person proposing the split and the person who must accept or reject the split?

Correct Answer
verified

Exam 12: Information and Behavioural Economics

In the real world, people always behave rationally when making economic decisions.

Correct AnswerverifiedShow Answer

Asymmetric information is a problem that occurs when one person in a transaction knows more about what is going on than the other.

Correct AnswerverifiedShow Answer

Explain how the ultimatum theory works and its likely results.

Correct AnswerverifiedTwo volunteers are chosen and a coin tos...View AnswerShow Answer

What is herd mentality?

How have insights from the field of psychology influenced the thinking of economists in recent years?

Correct AnswerverifiedInsights from psychology have led some e...View AnswerShow Answer

Effective signals

Correct AnswerverifiedA

To avoid the problem of adverse selection, insurance companies screen their prospective customers to discover hidden health problems.

Correct AnswerverifiedTrue

Which of the following is not a method firms use to avoid the moral hazard problem in the employment relationship? They:

Correct AnswerverifiedShow Answer

What is the purpose of signalling?

Correct AnswerverifiedSignalling is an action taken by an info...View AnswerShow Answer

Which of the following help explain why firms pay bonuses to workers during particularly profitable years to prevent workers from becoming disgruntled? People

Correct AnswerverifiedShow Answer

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? It must be:

Correct AnswerverifiedShow Answer

Explain and provide examples of what is meant by "asymmetric information."

Correct AnswerverifiedAsymmetric information is present when t...View AnswerShow Answer

Yusuf is planning to sell his home. In preparation for the sale, he paints all of the ceilings in his house to cover up water stains from his leaking roof so that potential buyers will be unaware of this problem. This is an example of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe daughter will likely choose to clean...View AnswerShow Answer

The field of behavioural economics builds a more subtle and complex model of economic behaviour using insights from

Correct AnswerverifiedShow Answer

Which of the following is not an example of signalling?

Correct AnswerverifiedShow Answer

The fact that someone with a high risk of medical problems is more likely to buy a lot of health insurance is an example of something that will give rise to

Correct AnswerverifiedShow Answer

In the principal-agent relationship, the principal performs a task on behalf of the agent.

Correct AnswerverifiedShow Answer

Nicole wants to avoid buying a car with hidden defects. She takes a car she would like to buy to her mechanic before she purchases it. This is known as

Correct AnswerverifiedShow Answer

In the ultimatum game, what split would be rational for both the person proposing the split and the person who must accept or reject the split?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Two volunteers are chosen and a coin tos...
View Answer

Correct Answer
verified
Insights from psychology have led some e...
View Answer

Correct Answer
verified
A

Correct Answer
verified
True

Correct Answer
verified

Correct Answer
verified
Signalling is an action taken by an info...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Asymmetric information is present when t...
View Answer

Correct Answer
verified

Correct Answer
verified
The daughter will likely choose to clean...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified