economics questions

Question1

The more bidders there are at an oral auction:

Select one:

a. the less each bidder will shade his bid

b. the higher the expected selling price

c. the higher each bidder bids

d. the longer that each bidder will continue to bid

Question2

You are bidding in a second-price auction for a painting that you value at $800. You estimate that other bidders are most likely to value the painting at between $200 and $600. Which of these is likely to be your best bid?

Select one:

a. $800

b. $1,000

c. $400

d. $600

Question3

The optimal bidding strategy for an oral auction is:

Select one:

a. To bid drop out when the bidding exceeds your true value

b. To size up your competition to determine how much to shade your bid

c. To shade your bid below your true value and drop out just when the shaded amount is reached

d. To shade your bid below your true value and drop out well before it is reached

Question4

This factor contributes to the winner's curse:

Select one:

a. Your estimate of the value of the object was not the most optimistic

b. There were not many other bidders you had to beat out

c. Your bid was the highest

d. You did not shade your bid enough

Question5

To attract more bidders, and more aggressive bidders, to your auction:

Select one:

a. Don't allow bidders to know how others are bidding

b. Hold oral auctions

c. Don't allow potential bidders to examine the object too closely

d. Withhold relevant information about the value of the object

Question6

An employer faces two types of employees. Regular workers are 70% of the population and generate $100,000 in productivity. Exceptional workers are 30% of the population, and generate $120,000 in productivity. Employees know their types, and reject salaries below their productivity. If the employer offers a salary equal to the average productivity in the population, what will be the employer’s per-employee profit?

Select one:

a. $10,000

b. $6,000

c. $4,000

d. $0

Question7

Adverse selection in insurance implies that:

Select one:

a. People are not risk averse

b. All people face the same risk

c. Insurers cannot tell higher risk people from lower risk people

d. Potential customers facing more risk are no more interested in purchasing insurance

Question8

When a home in Lake George went up for sale, the person interested in buying a home wanted to have the house inspected. The person selling the home encouraged the buyer to inspect the house before the sale is final.

Which statement is true?

Select one:

a. The buyer is signaling

b. The buyer is trying to solve the problem of adverse selection

c. None of the above

d. The seller is screening

Question9

Individuals who face greater risks:

Select one:

a. Are neither more nor less likely to purchase insurance

b. Are more likely to purchase insurance

c. Are risk neutral

d. Are less likely to purchase insurance

Question10

Which is NOT an example of signaling high quality in a social setting:

Select one:

a. Doing messy chores before a big date

b. Leaving a big tip for the waiter after a dinner date

c. Wearing a business suit on a job interview

d. Offering an expensive engagement ring to your bride

Question11

APC offers an extended warranty for its product that is purchased by a few customers.

If the product typically fails 2% of the time:

Select one:

a. Cannot tell from this information

b. APC should price the warranty at less than 2% of the product price

c. APC should price the warranty at exactly 2% of the product price

d. APC should price the warranty at more than 2% of the product price

Question12

A salesperson can put in regular effort (resulting in a 40% chance of sale) or high effort (60% chance of sale). If high effort costs the salesperson $20 more than regular effort, how large of a per-sale bonus is required to encourage high effort?

Select one:

a. $100.00

b. $20.00

c. $12.00

d. $33.33

Question13

Which of the following is an example of moral hazard?

Select one:

a. After employees sign up for the company health plan that covers all doctors’ visits, they start going to the doctor every time they get a cold

b. Reckless drivers are the ones most likely to buy automobile insurance

c. Retail stores located in high-crime areas tend to buy theft insurance more often than stores located in low-crime areas

d. Drivers who have many accidents prefer to buy cars with air bags

Question14

In a bad economy, a CEO has a 4% chance of meeting earnings estimates at regular effort, and a 6% at extraordinary effort. Extraordinary effort costs the CEO $10,000 in extra effort. How a large of a bonus should the CEO be paid for meeting estimates to encourage extraordinary effort?

Select one:

a. $200,000

b. $250,000

c. $100,000

d. $500,000

Question15

The difference between moral hazard and adverse selection is:

Select one:

a. Moral hazard has to do with unobservable characteristics of individuals

b. Adverse selection is when you choose the wrong answer on a test

c. Moral hazard has to do with unobservable actions of individuals

d. Adverse selection is when individuals change their behavior because of a contract