Adverse selection arises in insurance markets because

Adverse selection arises in insurance markets because
 a. insurance buyers have more information than insurance sellers.
  b. insurance sellers have more information than insurance buyers.
  c. individuals can select which insurance company to patronize.
  d. insurance companies can exercise too much control over whom they insure.

QUESTION 2

Which of the following is an application of the adverse-selection problem?
 a. a customer driving more recklessly after buying car insurance.
  b. a teenager hanging out with friends his or her parents do not approve of.
  c. shareholders offering a high-powered incentive contract to a manager.
  d. an auto repairman claiming that the repairs are more extensive than they actually are.

QUESTION 3

The principal is distinct from the agent in the principal-agent model because
 a. the principal offers the contract to the agent.
  b. the principal is fully informed.
  c. both a and b.
  d. neither a nor b.

QUESTION 4

Suppose Johnny Stroller sells 12, 25, and 75 year-old scotch in under black, red, and blue labels. Suppose the storage costs are zero and the initial production costs are the same. What is the implied (approximate) interest rate if black sells for 12, red for 16 and blue for 44.
 a. 2
  b. 5
  c. 8
  d. 10

QUESTION 5

Suppose Johnny Stroller sells 12, 25, and 75 year-old scotch in under black, red, and blue labels. Suppose the storage costs are zero and the initial production costs are the same. What is the implied (approximate) interest rate if black sells for 18, red for 34 and blue for 388.
 a. 2
  b. 5
  c. 8
  d. 10

QUESTION 6

Suppose you know a piece of land will be worth 1 million (real) in 2045, and the real interest rate is 5. About how much should you be willing to pay for the land today (2015)? (Assume no taxes).
 a. 610,000
  b. 1 million
  c. 1.89 million
  d. 230,000

QUESTION 7

Suppose you know a piece of land will be worth 1 million (real) in 2025, and the real interest rate is 5. About how much should you be willing to pay for the land today (20150)? (Assume no taxes).
 a. 610,000
  b. 1 million
  c. 1.89 million
  d. 230.000

QUESTION 8

Draw a two period budget line where the borrow/lending rate of interest, r, allows consumers to choose consumption in each of the two periods. C1 and C2 given their anticipated income on two periods, Y1 and Y2 . The slope is
 a. r
  b. r
  c. 1 + r
  d. (1 + r)

QUESTION 9

Draw a two period budget line where the borrow/lending rate of interest, r, allows consumers to choose consumption in each of the two periods. C1 and C2 given their anticipated income on two periods, Y1 and Y2 . The vertical (C2) intercept is
 a.
  b.
  c.
  d.