Risk and Exclusion: Sample Quiz

Choose the most correct answer. Either click on a button or enter your answer in the box to the left of the question. When you have answered them all, click the Check-My-Answers button and you will see how well you know this material.

1. Many academicians struggle for months writing a paper that, if published, will be read by 100 people at most. These academicians feel that this work is valuable to them because it is a way of demonstrating, if they must search for a job, that they have remained intellectually active. What term have we used that best describes this activity?

Signaling
 Advertising
 Screening
 Marketing
 Searching

2. There is no market for grade insurance. Students cannot insure themselves from the hazard of getting low marks in a course. Which of the following would be a reason why such insurance is unavailable?

There would be free-rider problems.
 There would be problems of moral hazard and adverse selection.
 There would be problems of arbitrage.
 There would be hedging problems.

3. Firms are concerned with developing brand names. A reason for this concern is that firms:

need to signal quality.
 desire to avoid shirking.
 wish to avoid a welfare loss.
 have constant returns to scale.

4. In the late 1950s, several people blew up airliners in order to collect large life insurance policies that they had taken out on family members. These incidents are examples of:

creative destruction.
 moral hazard.
 the free-rider effect.
 implicit returns.

5. In the Underground Economist Tim Harford writes, "It is not polite to say so, but it is obvious that paying people to be unemployed encourages unemployment." He is describing:

adverse selection.
 asymmetric information.
 signaling.
 moral hazard.

6. Some of the things that are disappearing or declining in America are cameras that use film (being destroyed by digital cameras), newspaper want ads (being destroyed by Internet sites such as Craig's List), and travel agents (largely destroyed by Internet sites such as Orbitz, Hotwire, and Travelocity). Economists refer to what is happening in these situations as:

adverse selection.
 speculation.
 creative destruction.
 hedging.
screening.

7. Outer Penuria is suffering from famine. Barry Griedy bought food after the last good harvest and is now selling it to the people for five times the amount he paid for it. Most economists argue that Griedy's actions:

are socially harmful because they exploit the poor.
 would not happen if there was not asymmetric information in the market.
 serve a useful purpose of moving food from a lower-valued use to a higher-valued use.
 serve no social purpose because they simply redistribute money in the way a zero-sum game does.

8. A person who buys low in one market while at the same time is selling the same thing in another market at a high price is engaged in:

speculation.
 signaling.
 entrepreneurship.
 arbitrage.

Return to Back to Overview Table of Contents

Copyright Robert Schenk