Question

Firms that hire outside consultants can reduce the impact of moral hazard by:

	A.	hiring work on a fixed-fee basis
	B.	monitoring the quality of the completed work
	C.	hiring consultants with an established reputation for not shirking
	D.	All of the above

A business owner attains a bank loan to purchase a new delivery truck for the business, but they use the funds to take a vacation to Australia. Which of the following terms describes the problem with this situation?

	A.	Adverse selection
	B.	Moral hazard
	C.	Both moral hazard and adverse selection
	D.	There is not a problem with this situation

Which of the following actions can be an example of a signal designed to reduce the impact of asymmetric information?

	A.	A money-back guarantee
	B.	Students pursue graduate training
	C.	Students take an unpaid internship
	D.	All of the above

In a situation subject to asymmetric information, which party should use the screening techniques?

	A.	More informed party
	B.	Neither party should use screens
	C.	Less informed party
	D.	We do not have enough information to answer this question

Which of the following statements is NOT true?

	A.	English auctions are also known as oral auctions
	B.	Oral auctions are also second-price auctions
	C.	The outcomes from Vickrey auctions are identical to first-price sealed bid auctions
	D.	Common value auctions are subject to the winners curse

Which type of randomness can be fully described by a probability distribution?

	A.	Risk
	B.	Uncertainty
	C.	Both of the above
	D.	None of the above

Answer 1

1. The correct answer is option C) because this will help firms get rid of problems of moral hazard. As moral hazard refers to the situation where the individuals changes their behavior when they got incentivized.
2. The correct answer is option B) because under moral hazard the individuals act or changes its behavior.
3. The correct answer is option A) because with money back guarantee the buyer can return the product if it is faulty thus, the seller does not have any incentive to hide information.
4. The correct answer is option C) because the less informed person will use the screening techniques to get more information of the product.

*We are supposed to do only first four questions to MCQ. For solution to other questions please post separately in a set of four.