Test Bank Microeconomics 9th Global Edition By Jeffrey Perloff

Test Bank For
Microeconomics 9th Global
Edition By Jeffrey Perloff


(All Chapters 1-20, 100%
Original Verified, A+ Grade)


All Chapters Arranged
Reverse: 20-1
This is The Original Test Bank
For 9th Global Edition, All
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Fake/Old/Wrong Edition.

,Microeconomics, 9e, Global Edition (Perloff)
Chapter 20 Contracts and Moral Hazards

20.1 The Principal-Agent Problem

1) In which of the following contracts is the agent's payment unaffected by his performance?
A) fixed-fee contract
B) hire contract
C) contingent contract
D) sharing contract
Answer: A
Section: The Principal-Agent Problem
Question Status: Old
AACSB: Analytic thinking

2) The outcome of the state of nature effects the payoff to the agent under a
A) fixed-fee contract.
B) hire contract.
C) contingent contract.
D) All of the above.
Answer: C
Section: The Principal-Agent Problem
Question Status: Old
AACSB: Analytic thinking

3) Moral hazard occurs when contracts are written in such a way that
A) the interests of agent and principal converge.
B) the interests of agent and principal diverge.
C) agents will wish to maximize the principal's utility.
D) production and risk-bearing efficiency are achieved.
Answer: B
Section: The Principal-Agent Problem
Question Status: Old
AACSB: Analytic thinking

4) Efficiency in risk bearing implies that
A) risk is completely eliminated.
B) the least risk-averse party bears most of the risk.
C) the most risk-averse party bears most of the risk.
D) all of the risk is borne by just one of the parties regardless of the degree of risk aversion.
Answer: B
Section: The Principal-Agent Problem
Question Status: Old
AACSB: Analytic thinking




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,5) Production efficiency implies that
A) joint profits are maximized.
B) joint profits are minimized.
C) joint profits are zero.
D) joint profits can be increased.
Answer: A
Section: The Principal-Agent Problem
Question Status: Old
AACSB: Analytic thinking

6) Many professional sports athletes have incentive clauses in their contracts. These indicate that
A) the team owner has asymmetric information.
B) the athlete might engage in moral hazard, which the team owner wishes to avoid.
C) the athlete might engage in adverse selection, which the team owner wishes to avoid.
D) the athlete has stronger negotiators.
Answer: B
Section: The Principal-Agent Problem
Question Status: Old
AACSB: Analytic thinking

7) In professional golf, a tournament winner might win, say, $1 million, whereas second place
wins only $600,000. Why might golf have a 40% reduction in prize money from first and second
place?
A) to ensure that there is enough money to pay those who finish near last
B) to motivate golfers to take risks they might not otherwise take
C) to motivate golfers to not take risks they might otherwise take
D) The Professional Golfers Association is a cartel.
Answer: B
Section: The Principal-Agent Problem
Question Status: Old
AACSB: Analytic thinking

8) In NASCAR, a race winner might win, say, $500,000, whereas second place wins $450,000.
Why might NASCAR have a 10% reduction in prize money from first and second place?
A) to ensure that there is enough money to pay those who finish near last
B) to motivate drivers to take risks they might not otherwise take
C) to motivate drivers to not take risks they might otherwise take
D) NASCAR is a cartel.
Answer: B
Section: The Principal-Agent Problem
Question Status: Old
AACSB: Analytic thinking




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, 9) Season ticket holders often purchase their tickets before a season begins. There is often a
discount associated with season tickets. Why?
A) Buying season tickets entails risk, which consumers are willing to bear if they are
compensated for doing so.
B) Buying season tickets is a way of guaranteeing a supply of tickets for the secondary market.
C) Selling season tickets entails greater transactions costs which team owners hope to avoid.
D) Sports teams are local monopolies.
Answer: A
Section: The Principal-Agent Problem
Question Status: Old
AACSB: Analytic thinking

10) Season tickets entail a certain amount of risk due to unpredictable team quality, injuries,
weather, and so forth. Who is most likely to purchase season tickets?
A) Sally, who is a rabid fan and is not wealthy
B) Jim, who is a rabid fan and is risk neutral
C) Roger, who is a rabid fan but is risk averse
D) Jenn, who is a fan and is very wealthy
Answer: B
Section: The Principal-Agent Problem
Question Status: Old
AACSB: Analytic thinking

11) What is one potential problem with nationalized health care?
A) It might not be efficient in risk bearing.
B) It is guaranteed to solve the principal-agent problem.
C) It would be efficient in risk bearing.
D) It might cost too much.
Answer: A
Section: The Principal-Agent Problem
Question Status: Old
AACSB: Analytic thinking

12) We can say that a contract is able to prevent moral hazard when
A) it eliminates production inefficiencies due to moral hazard without shifting risk to risk-averse
people.
B) it eliminates production inefficiencies due to moral hazard without shifting risk to risk-loving
people.
C) it shifts risk to risk-loving people.
D) it eliminates production inefficiencies due to moral hazard and shifts risk to risk-averse
people.
Answer: A
Section: The Principal-Agent Problem
Question Status: Old
AACSB: Analytic thinking



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