MANAGERIAL ECONOMICS (BUSA-615) - MODULE 6 TEST QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026

MANAGERIAL ECONOMICS (BUSA-615) - MODULE 6 TEST QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026 An example of moral hazard is - Answers A taxi driver paid per mile taking a longer route than necessary Moral hazard would lead to - Answers Drivers taking on a lot more risk after buying insurance Moral hazard is caused by - Answers Hidden actions Which is NOT an example of moral hazard - Answers Drivers of heavier, safer cares are less likely to run stop signs A shoe salesman working on commission must decide whether to work hard or shirk. Working hard would increase the probability of a sale from 20% to 70% but the effort would cost him $5. If the typical commission on a pair of shoes was $8, would he decide to work hard? - Answers No, because it costs him more in effort Economists disagree with constant government bailouts of large, struggling companies because it can give a rise to - Answers Moral hazard A firm that screens candidates to determine how well they would work with limited supervision is afraid of facing - Answers Moral hazard The following is NOT an example of a potential monitoring solution to moral hazard - Answers requiring physicians to be 'board certified' Many spouses complain that their partners put less effort into their relationship after getting married. This is an example of - Answers Moral hazard An example of moral hazard is - Answers a piece-rate garment worker shirking less than a per hour worker Adverse selection is caused by - Answers Hidden information One difference between moral hazard and adverse selection is - Answers Adverse selection has to do with unobservable actions of individuals Surgical weight loss procedures are cheaper and safer than ever. As a consequence, we could expect: - Answers Both B&C An example of moral hazard is - Answers workers shirking when the boss is not looking Many spouses complain that their partners tend to "let themselves go" after getting married. This is an example of - Answers Moral hazard To signal to your insurance company that you are a low risk individual you should - Answers Accept an insurance policy with co-payments In the market for insurance, low risk customers are not served because - Answers Products designed to be attractive to them are also attractive to high risk types. Someone who values a lottery at less than the expected value is - Answers risk averse An indication that Insurance companies anticipate adverse selection is - Answers they classify clients into different risk types according to pre-existing conditions An indication that Insurance companies anticipate adverse selection is - Answers they require a deductible The following is an example of adverse selection - Answers Individuals living in less secure neighborhoods want to buy more insurance Samantha often forgets to lock her house. This has caused the probability of a burglary to be 30%. If her house gets broken into, she faces a property loss of $10,000, otherwise she gets to keep her $100,000. If Samantha is offered an insurance policy for her house to protect her from loss at $3,000, would she buy the insurance? - Answers Yes because she gets to now enjoy her wealth risk-free Both Nadia and Samantha are applying to insure their car against theft. Nadia lives in a secure neighborhood, where the probability of theft is 10%. Samantha lives in a lesser secure neighborhood where the probability of theft is 25%. Both Nadia and Samantha own cars worth $10,000, and are willing to pay $100 over expected loss for insurance. How much would Samantha be willing to pay for the insurance? - Answers $2600 A bride accepting a proposal only if the ring is expensive enough is a - Answers Screening mechanism In the market for newly developed real estate, adverse selection could occur when - Answers The developers of the property know more about the properties than the buyers Individuals who face greater risks - Answers are more likely to purchase insurance For a screen to be successful, - Answers It must not be profitable for high risk individuals to pose as low risk individuals Adverse selection represents - Answers All of the above Both Nadia and Samantha are applying to insure their car against theft. Nadia lives in a secure neighborhood, where the probability of theft is 10%. Samantha lives in a lesser secure neighborhood where the probability of theft is 25%. Both Nadia and Samantha own cars worth $10,000, and are willing to pay $100 over expected loss for insurance. Suppose the insurance company cannot tell them apart but expects them to be different values and charges them an average premium of $1850. Who is more likely to buy this insurance? - Answers Samantha Potential buyers of older homes form their bids from imperfect estimates of a house's value. As a consequence, - Answers High-value houses would remain unsold The Nash equilibrium is - Answers a pair of strategies, one for each player, in which each player's strategy is the best response to the other's First-mover advantage is a characteristic of - Answers A sequential-move game Two siblings, Brenda and Tina are playing a simultaneous hit and tell game. Brenda can hit Tina or not and Tina can tattle on Brenda or not. Relative to no hitting and no tattling, if Brenda hits Tina, and she tattles they both experience a loss of 10. Not telling, gets Tina a bruise, a loss of 5 but Brenda gains 5. If she tattles untruthfully, Tina gets a gain of 5 and Brenda loses 5. If they get along, no one gets anything If Brenda decides not to hit Tina, what would Tina's best response be? - Answers Tell Two ice cream trucks A&B are playing a simultaneous pricing game. If one of them prices low, he gets all the customers, a payoff of 12, while other gets zero. If both price high they each get a payoff of 6 and if both price low, they get a payoff of 5. If the game is repeated indefinitely, and the vendors adopt a trigger strategy such that they would start charging the low price only if the other vendor charged a low price last time, what would be the Nash equilibrium? - Answers Both the vendors price high A shoplifter and a security guard are playing a simultaneous game. If the shoplifter steals and the security guard is vigilant, the shoplifter gets caught she suffers a loss of 20, and the security guard gets a bonus worth 15. If the shoplifter steals and the security guard is not vigilant, she does not get caught and gains 15 and the guard loses 5. If the shoplifter does not steal and the guard is vigilant, the guard loses 3 for the effort, while the shoplifter gains nothing and if the shoplifter does not steal and the guard is not vigilant, neither gain anything If the shoplifter knows that the security guard has a reputation for sleeping on the job, what would his best response be - Answers Steal Two roommates John and Joe are playing a simultaneous game of cleaning the apartment. If neither of them clean, the apartment gets filthy and both get a utility of 2. If John cleans and Joe doesn't, John gets a utility of 1 and Joe gets a utility of 4. If Joe cleans and John doesn't, Joe gets a utility of 1 and John gets a utility of 4 and if both clean up the apartment, they each get a utility of 3. If the roommates played the game repeatedly where one roommate not cleaning this time would trigger the other roommate not cleaning next time, the Nash equilibrium is most likely to be - Answers Both of them clean