Principles of Microeconomics
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If the seller knows more about the good than the buyer, there exists:
a. an externality.
b. asymmetric information.
c. moral hazard.
d. a public goods problem
If the market for used computers has only lemons (low-quality computers) then the market:
a. is an example of a thick market.
b. suffers from an adverse selection problem.
c. is a type of monopoly.
d. must be monopolistically competitive
Adverse selection in employment is more likely when:
a. jobs require specific training.
b. everyone is equally qualified for the job.
c. people's abilities are easy to measure.
d. people's abilities are difficult for potential employers to observe.
In a _____market there are few high-quality goods for sale while in a ____market there are many high-quality goods for sale.
a. thin; thicker.
b. thicker; thin.
c. inefficient; efficient.
d. weak; strong.
Suppose buyers in the used car market are willing to pay $3,500 for a plum (high-quality) used car and $1,500 for a lemon (low-quality) used car. If buyers believe that 30% of the used cars on the market are lemons (low quality), what would they be willing to pay for a used car?
a. $2000
b. $2500
c. $2900
d. $3500
A market in which there are neither spillover benefits nor spillover costs is:
a. efficient.
b. in efficient.
c. efficient but not equitable.
d. impossible.
The discoveries from space exploration are examples of:
a. private goods.
b. external goods.
c. public goods.
d. spillover goods.
A college education generates:
a. no benefits.
b. only private benefits.
c. only spillover benefits.
d. both private and spillover benefits.
Arranging matching charitable contributors will______ the free-rider problem and lead to a _____ level of contribution to the public good.
a. increase; smaller.
b. increase; larger.
c. reduce; smaller.
d. reduce; larger.
The theory of government that assumes that the goal of government is to make the government more efficient is called:
a. public choice economics.
b. the public interest view.
c. the efficient markets hypothesis.
d. the voter theory.
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Solution Summary
The solution answers a number of multiple choice questions related to microeconomics.
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1. If the seller knows more about the good than the buyer, there exists:
a. an externality.
b. asymmetric information.
c. moral hazard.
d. a public goods problem
Answer: (b) Asymmetric Information
The failure of two parties to a transaction to have the same relevant information. Examples are buyers who know less about product quality than sellers, and lenders who know less about likely default than borrowers. Both are common in international markets.
2. If the market for used computers has only lemons (low-quality computers) then the market:
a. is an example of a thick market.
b. suffers from an adverse selection problem.
c. is a type of monopoly.
d. must be monopolistically competitive
Answer: (b) suffers from an adverse selection problem.
Adverse Selection refers to a market process in which bad results occur due to information asymmetries between buyers and sellers: the "bad" products or customers are more likely to be selected. A bank that sets one price for all its checking account customers runs the risk of being adversely selected ...
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