Question

c Date: Class (First Pagr) Date: Class (Subsrquent Pagrs) If you are risk avene a. You value a lohery a moee than is expected value. b You ike to uke gambles. c. A loaery is worth kess to you than iks expected vaue d You advertise your anihude twward risk. When farmers sell forward contracts in spring for the harvest they will reap in Autumn a. Their planting decisions are riskier due to increased uncertainy b They accrpt a price higher than dhe expected price during harvest c They are worse off because the price today is less than what they could expect so sell her crops for in the autumn d They are beter off because dhey have a preference for reducing risk If an invarance company cannot dissinguish between the riskiness of poential customers, then: a Their risk pool will have relacively more high risk cusomers than the population at large. b. They primarily sell to low risk customers c. They earn more because hey can overcharge the low risk customers d. They can break at least even id they charge a rate based on the average risk in the population at large. When offering insurance to groups with differens risk profies a lesurers ond oo cater products oo the higher risk group. b. Insurers serve the lower risk groups because they make fewer claims c Lower risk groups get more insurance coverage than higher risk groups. d The higher risk groups are offered only get only partial insurance. Screening: a. represents eforts made by the more informed party b. is when the more informed party reveals her type by the choices she makes is when the less indormed party gathers information by the choices the more informed party makes d represents the more informed pary being persuaded to reveal informaton about their type. Signaling: a. represents effons ao share informasion made by the more informed party h is when the less informed party signals her type by the choices she makes c, is when the less informed party gathers information by the choices the more informed party makes. d. represens the less informed party being persuaded so reveal intormation abou their type. For signalling oo work in insurance: a. It must be profitable for low risk types to reveal their type. b. It must not be profitable for high risk types to mimic low risk signals c. The insurer must be able to distinguish between high and low risk types based on the signal d. All of the above 8. E-commerce platforms, like Amazon.com, restrict their sites to high quality sellers by a. Suing all firms with "0oo many" product reviews b. Soliciting third-party reviews with compensation c. Prominently displaying reviews that other customers considered less informative. d. Banning sellers from offering inducements for favourable reviews. Moral Hazard occurs when: a People are more likely to decide on a course of action when they do not bear the costs of the decision. b. Technologies that reduce risks make people more careful c. People take fewer risks when odhers bear the costs of these risks. d. People are less carefull when they safer technologies are not available. 10. Examples of Moral Hazard are a. Dock wockers without back-support belts lift heavier weights b. A company borrowing for mobile phone spectrum paying off all debs even if the system is losing money c. A football player with less procective gear playing rougher. d A driver with all passenger airbags driving slightly more recklessly Insured customers: a. Exercise more care because they have less incentive to do so. b. Exercise less care because they have less incentive to do so. c. Exercise more care because they have more incentive to do so. d. Exercise less care because they have more incentive to do so. 12. Examples of insurance companies protecting themselves against moral hazard are: a. Free annual physical exams b. Buying locks for insured bicycles. C. Requiring repairs that homeowners make to their houses conform to building codes. d. All of the above. a 13. Il mocal hazard exists in insurance markets a. There are no uninsured customers who would like insurance b. Insurance compaties have sold insurance oo all posendial cusaomers c. There is the potensial for another trareactioe to be wealth-creating. d. No customers bear more risk than they would like s0. which of the follow'ing are examples of moral hasard Poor drivers purchase cars with ant-lock brakes. b People living in areas with more theft buy more theft insurance. c. People living along the river buy more flood insurance d Drivers with and-lock brakes drive in ice and rain 15. The difference between moral hazard and adverse selection is: a. Moral hazard has to do with hidden informusion about counter-party types. b. Adverse selection refers to actions taken after a tram.action has occurred c. Moral hazard has to do with hidden information about counter-party behaviors d Adverse selection has to do with hidden information about counter-party behaviors Shirking on dhe job is a version of moral hazard because a. Workers will exert less effort if there is no reward to exerting more elfiort b. Managers can observe the amount of effon workers exent c Workers ge paid for exerting effort even if it does not generate a sale Whee managers choose to allow workers o engage in some shirking, it is because a. It would be profitable to set a high enough reward to induce the b. The metric used to evaluate workers is a perfect measure of the effort they exerted. c. Workers do not receive any payment when they shirk. d. The amount workers would have to be compens.aced to stop shirking is not worth it. appropriate effort PIGE I (First Page) MGE I (Subsequent Pags)

Answer 1

Ans:1 c) a lottery worth less to you than its expected value

reason: if you are risk averse you are hesitant to take a risk.

Ans:2 d) they are better off because they have preferred for reducing risk

Reason: Framers have reduced the risk of uncertainty in the future as they already sold their harvest

Ans:3 b) they primarily sell to low-risk consumers

Reason: insurance company prefers low-risk consumers as they can charge premium without any major loss.

Ans:4 b) Insurer serves to lower risk group because they make fewer claims

Reason: as given above

Ans:5 c) is when the less informed party by the choices the more informed party make

Ans:6 a) represents the efforts to share information by the more informed party

Ans:7 d) all of the above

Ans:8 d) banning sellers from offering the inducement for favorable reviews.

Ans:9 a) people are more likely to decide on a course of action when they do not bear the cost of the decision

Ans:10 d) a driver with all passengers airbag driving more recklessly.

Ans:11 d) exercise less care because they have more incentive to do so.

Ans:12 d) all of the above

Ans:13 d) no customer have more risk than they would like to

Ans:14 d) driver with anti-lock brakes drive in more ice and rain

Ans:15 d) adverse selection is to do with hidden information by the counterparty behaviors

Ans:16 c) workers get paid for exerting efforts even though it does not generate sales

Ans:17 a) it would be profitable to set a high enough reward to induce the appropriate efforts.