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Basic liability auto insurance is mandatory to prevent
- Adverse selection.
- Better drivers from skipping auto insurance.
- The collapse of the insurance pool.
- Both B and C.
- All of the above.
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The number of yes persons is likely to be higher in business where
- performance criteria are objective.
- the boss is secure.
- employees have job security.
- performance criteria are mostly subjective.
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Statistical discrimination
- hurts those who have higher than average risk in the group being discriminated against.
- benefits those who have higher than average risk in the group being favored.
- is unfair to everybody in the same statistical group.
- treats everybody in the same statistical group fairly.
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Which of the following institutions allow sellers and buyers to build up their reputation?
- Credit card companies.
- eBay auction site.
- Movie theaters.
- Fly-by-night operations.
- Both A and B.
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Lemon owners prefer to sell their lemons to strangers because
- they are less concerned about their reputation to strangers.
- information about their lemons is less asymmetric to strangers than to their friends.
- Strangers can detect a lemon more easily than the lemon owners' friends.
- Strangers are likely to offer less.
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Online buyers often free-ride on offline retailers' product information because
- Online sellers offer much lower prices but little touch-and-feel product information.
- Manufacturers do not have information stores to demonstrate their products.
- Most products do not require much after-sale service.
- All of the above.
- Both A and B.
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If more choices could make people more likely to regret their choice later, that means
- the theory of opportunity cost is quite difficult to apply correctly when too many close choices are available.
- choices must have been very different in degree and substance.
- the theory of opportunity cost must be wrong.
- more choices are always better than less choices.
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In order to be profitable, the market maker in a two-sided market must
- assume that each side of the market is equally well-stocked and has equal price elasticity.
- price their services to cover at least the marginal cost on each side of the market.
- not make one side cross subsidize the other side.
- consider the price elasticity and how well-stocked each side of the market is in setting prices.
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Information cascades occur because
- of adequate information.
- it is cheaper to conduct independent verification.
- crowds are generally correct.
- there is safety in numbers.
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If college A has more selective admissions standards than college B,
- college B will serve as a magnet for adverse selection.
- Nobody would attend college B.
- less academically oriented students will be attracted to college A.
- a diploma from college B will be more highly valued by potential employers.
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Celebrity endorsers may start an up cascade of product adoption because
- they are not likely to endorse a product unless it is really good.
- buyers want to be identified with the celebrity.
- buyers are too lazy to gather their own information.
- Both B and C.
- Both A and B.
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Cheaters and trusters coexists because
- It is too expensive to identify all cheaters.
- Trusters still gain by being always honest as long as the percentage of cheaters is small.
- Cheaters need trusters to survive.
- Trusters need cheaters to survive.
- Both A and B.
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The side of a two-sided market that is _______________ to
price should be charged ________ than the side which is ________________
to price. On the other hand, the side that is ____________ need not be
paid a price premium than the side that is __________.
- more sensitive; less; less sensitive; less well-stocked; well-stocked
- less sensitive; more; more sensitive; less well-stocked; well-stocked
- more sensitive (elastic); less; less sensitive (inelastic); less well-stocked; well-stocked
- more sensitive (elastic); less; less sensitive (inelastic); well-stocked; less well-stocked
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Everybody is in the business of passing lemons around because
- nobody wants to write off the capital loss.
- nobody gets hurt in voluntary transactions.
- it is the golden rule to do unto others what others do unto you.
- buyers would not have bought the "lemon" unless they know it is not a lemon.
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Joint liability
- reduces the risk of loan default in the absence of objective credit history.
- allows lenders to lend to fewer people.
- is less time consuming than objective credit history in expanding the loan circle.
- is more useful as a loan collateral in mobile societies.
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Product warranty
- is costly to manufacturers who have no intention to honor its terms.
- gives no quality information to buyers if every manufacturer offers the same warranty terms.
- is still useful even after the manufacturer is out of business.
- is more meaningful for perishable goods.
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When even basic information is difficult to obtain, people tend to
- make better decision.
- optimize at narrow margin.
- do the opposite of what the crowds do.
- believe rumors.
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If people choose their clothing according to how well the clothing style enhances their look, they are more likely to
- join every up cascade.
- resist some fashions.
- join every down cascade.
- follow every changing fashion.
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Under which health insurance system would the insured voluntarily undergo genetic screening for curable diseases?
- National health insurance where everybody is covered regardless of risk.
- Private health insurance where the insurer can adjust premiums according to health risk.
- Nation-wide health management organization with risk-based premiums.
- All of the above.
- Both A and C.
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In what way does good reputation pay?
- Borrowers can enjoy lower-interest loans.
- Sellers can charge higher prices.
- Employees can get more challenging job assignments and faster promotion.
- All of the above.
- Both A and B.