Multiple Choice Quiz

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1		Two crucial ingredients in a hidden characteristics problem are
			A)	ex post information asymmetry and conflicting interests.
			B)	ex post information asymmetry and joint interests.
			C)	ex ante information asymmetry and conflicting interests.
			D)	ex ante information asymmetry and joint interests.
2		A market with hidden characteristics may disappear due to the tension between
			A)	average and actual quality.
			B)	asymmetric information and opportunistic behavior.
			C)	ex ante and ex post information asymmetry.
			D)	opposing interests and surplus maximization.
3		Mandatory insurance is an example of changing the
			A)	players in order to solve the hidden characteristics problem.
			B)	payoffs in order to solve the hidden characteristics problem.
			C)	information structure in order to solve the hidden characteristics problem.
			D)	choice possibilities in order to solve the hidden characteristics problem.
4		Offering a menu of contracts tends to
			A)	generate additional information.
			B)	reduce the conflict of interest.
			C)	eliminate hidden characteristics.
			D)	increase the surplus.
5		A menu of contracts
			A)	revokes the law of one price.
			B)	is costly for the principal.
			C)	illustrates the failure of markets.
			D)	highlights the fact that asymmetric information can be dealt with effectively.
6		The crucial aspect of a menu of contracts is that
			A)	there are agents with hidden characteristics.
			B)	each contract consists of at least two contract variables.
			C)	there is an ex post information asymmetry.
			D)	agents are screened.
7		The unravelling principle of Grossman is an example of
			A)	agents hiding their hidden characteristics.
			B)	the effect of screening.
			C)	adverse selection.
			D)	the effect of signaling.
8		Signaling is an example of
			A)	an attempt by the principal to show trustworthiness.
			B)	a way to resolve the moral hazard problem.
			C)	generating additional information in order to reduce the information asymmetry.
			D)	restoring the importance of complete contracts.
9		Screening entails that the
			A)	information asymmetry between principal and agent disappears.
			B)	principal collects additional information.
			C)	agent collects additional information.
			D)	party with superior information provides information.
10		The value of the revelation principle is that it
			A)	resolves the information asymmetry in the hidden characteristics problem.
			B)	connects the hidden action problem with the hidden characteristics problem.
			C)	facilitates the computation of the optimal contract.
			D)	provides a way to resolve the conflict of interest between the principal and the agent.