IU Economics - B251, Gerhard Glomm
- Quiz 10 Q's, With Complete Correct
Answers 2025-2026 Updated.
Moral hazard is present when
1. There are different types of individuals and it is difficult to tell the different types apart
2. The marginal cost of the last unit is smaller than the marginal benefit
3. A particular action changes incentives for behavior for some people
4.There are large external costs - Answer 3. A particular action changes incentives for behavior
for some people
Adverse selection is present when
1. There are different types of individuals and it is difficult to tell the different types apart
2. The marginal cost of the last unit is higher than the marginal benefit
3. A particular contract changes incentives for behavior for some people
4. There are large external benefits - Answer 1. There are different types of individuals and it is
difficult to tell the different types apart
Drivers who buy insurance for their cars and for liability are most likely
1. More likely to be involved in accidents
2. Driving more recklessly
3. Run stop signs more frequently
4. All of the above - Answer 4. All of the above
The government announces that it will bail out all big banks in the next recession. As a
consequence, we can expect
1. More mergers in the banking sector
2. More risky lending
, The individual mandate in the Affordable Care Act is intended to
1. Provide incentives to overcome a negative externality and buy health insurance
2. Overcome a moral hazard problem
3. Solve the problem of unravelling of the health insurance market due to the lemons problem
4. All of the above. - Answer 3. Solve the problem of unravelling of the health insurance
market due to the lemons problem
When getting the oil in your car changed
1. You have more information than the workers who actually change your oil
2. There is the issue of moral hazard
3. Perfect information flows ensure that that market is competitive and efficient
4. One side of the transaction has more information than the other side of the transaction,
which gives rise to the lemons problem - Answer 4. One side of the transaction has more
information than the other side of the transaction, which gives rise to the lemons problem
Signing a 5- year contract with a college basketball coach rather than a sequence of 5 one-year
contracts gives rise to
1. A winning season
2. A losing season
3. The problem of adverse selection
4. The problem of moral hazard - Answer 4. The problem of moral hazard
The efficiency problem in problem #7 is expected to be larger
1. For younger coaches than for older coaches
2. For male coaches than for female coaches
3. For previously successful coaches than for previously unsuccessful coaches
4. For older coaches than for younger coaches - Answer 4. For older coaches than for younger
coaches
- Quiz 10 Q's, With Complete Correct
Answers 2025-2026 Updated.
Moral hazard is present when
1. There are different types of individuals and it is difficult to tell the different types apart
2. The marginal cost of the last unit is smaller than the marginal benefit
3. A particular action changes incentives for behavior for some people
4.There are large external costs - Answer 3. A particular action changes incentives for behavior
for some people
Adverse selection is present when
1. There are different types of individuals and it is difficult to tell the different types apart
2. The marginal cost of the last unit is higher than the marginal benefit
3. A particular contract changes incentives for behavior for some people
4. There are large external benefits - Answer 1. There are different types of individuals and it is
difficult to tell the different types apart
Drivers who buy insurance for their cars and for liability are most likely
1. More likely to be involved in accidents
2. Driving more recklessly
3. Run stop signs more frequently
4. All of the above - Answer 4. All of the above
The government announces that it will bail out all big banks in the next recession. As a
consequence, we can expect
1. More mergers in the banking sector
2. More risky lending
, The individual mandate in the Affordable Care Act is intended to
1. Provide incentives to overcome a negative externality and buy health insurance
2. Overcome a moral hazard problem
3. Solve the problem of unravelling of the health insurance market due to the lemons problem
4. All of the above. - Answer 3. Solve the problem of unravelling of the health insurance
market due to the lemons problem
When getting the oil in your car changed
1. You have more information than the workers who actually change your oil
2. There is the issue of moral hazard
3. Perfect information flows ensure that that market is competitive and efficient
4. One side of the transaction has more information than the other side of the transaction,
which gives rise to the lemons problem - Answer 4. One side of the transaction has more
information than the other side of the transaction, which gives rise to the lemons problem
Signing a 5- year contract with a college basketball coach rather than a sequence of 5 one-year
contracts gives rise to
1. A winning season
2. A losing season
3. The problem of adverse selection
4. The problem of moral hazard - Answer 4. The problem of moral hazard
The efficiency problem in problem #7 is expected to be larger
1. For younger coaches than for older coaches
2. For male coaches than for female coaches
3. For previously successful coaches than for previously unsuccessful coaches
4. For older coaches than for younger coaches - Answer 4. For older coaches than for younger
coaches
