4. In the car repair market, moral hazard is a problem because a. The car owner might pay money for a repair or service that was not needed. b. The car owner might opt not to get a repair that was actually needed for fear of being ripped off. c. The car owner has more information about the car’s status than the car mechanic. d. A & B only. e. B & C only. f. A, B, & C. Video name:Solutions to Moral Hazard 1. Identify whether the following scenario is meant to reduce moral hazard effects: Your car insurance has a high deductible (the amount that you have to pay out-of-pocket before insurance kicks in). a. Reduces moral hazard effects. b. Does not reduce moral hazard effects. 2. True or false: The under-provision of trustworthy third parties, such as Consumer Reports, reviewing products and services is an example of moral hazard. a. True b. False 124
3. You’d like to buy a new computer and so you are researching the best one to buy. Amazon reviewers rate a particular computer highly but Consumer Reports does not. Which product review site are you more prone to trust? a. Amazon b. Consumer Reports Video name:Signaling 1. True or False: If you were to drop out of college after attending for 3 years and completing 75% of all coursework, you could expect to earn about 75% of the college premium in the labor market. a. True b. False 2. In the marriage market (yes, it’s a market), which of the following is a signal by one or both people indicating that they are committed to a long-term relationship? a. Phil changes his last name to his wife’s when they get married. b. Ellen and Pat have dated for 3 years; they celebrate holidays apart with their respective families. c. Brad and Constance sign a pre-nuptial agreement before getting married. d. B & C only e. A & C only f. A, B & C. 125
3. You really want a particular job as a computer programmer. You think you are the perfect fit for the position and offer to work for much less than the job’s current salary posting. What possible signal did you just send to your prospective employer? a. You are enthusiastic about this job. b. You have a lot of good opportunities. c. You are desperate. d. A & B only. e. A & C only. f. A, B, & C. g. None of the above. 4. Human-made diamonds, which are just as beautiful and essentially indistinguishable from mined diamonds, are becoming much cheaper to produce. True or False: This new technology making diamond engagement rings much cheaper will be helpful because it will reduce the cost of this very costly commitment signal. a. True b. False 5. Peacocks who possess large, colorful tails signal a. They are healthy. b. They have good genes. c. They would make a good mating partner. d. B & C only e. A, B, and C 126
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