MULTIPLE CHOICE Choose the one alternative that best completes the statement or

Question

MULTIPLE CHOICE Choose the one alternative that best completes the statement or answers the question. 1) Which of the following workers is most likely to be asked to post a performance bond? 1) A) book author C) construction contractor D) fast food worker 2) If two events are perfectly positively correlated, then 2 A) diversification eliminates all risk. B) diversification is not necessary since there is no risk C) diversification does not reduce risk at all D) diversification only cuts the risk in half. 3) An uninformed party can useto learn about the information held by the informed party. 3) A) signaling C) a warranty B) screening D) educational attainment 4) A Nash equilibrium occurs when 4) A) oligopolists cooperate with each other. B) the efficient allocation of resources is achieved by setting marginal revenue equal to marginal cost. C) a monopolist is forced to produce the efficient level of output. D) players choose their best strategy given the strategies chosen by others. 5) A person who starts practicing poisonous snake charming after signing a contract with a health 5) insurance company is an example of A) signaling. C) screening. B) adverse selection. D) moral hazard. 6) 6) Firms in an oligopolistic market because they are- A) form cartels; unable to predict the behavior of other firms - B) attempt to predict the behavior of other firms, strategically interdependent C) ignore other firms' actions; strategically independent D) advertise; unable to differentiate their products 7) One interesting feature of a prisoner's dilemma game is that A) non-cooperative behavior leads to lower payoffs than cooperative behavior. B) it was only valid before the industrial revolution. C) individuals behave irrationally when they behave non-cooperatively D) cooperative behavior leads to lower payoffs than non-cooperative behavior. B-1

Explanation / Answer

1) Option C - construction contractor

2) Option C is correct (diversification does not reduce risk)

3) Option B (Screening is a method used by an uninformed party to learn about the information held by the informed party)

4) Option D (by definition)

5) Option D (this is an example of moral hazard)

6) Option B is correct (Firms in an oligopolistic market attempt to predict the behaviour of other firms; because they are strategically interdependent)

7) Option A is correct

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