Asymmetric Information

Click here to watch the Asymmetric Information video, then answer the following questions.

Question

1. The economist who won a Nobel Prize for analyzing cases of adverse selection was:

A.
B.
C.
D.

Question

2. Groucho Marx doesn’t want to be a member of any club that would have him as a member because:

A.
B.
C.
D.

Question

3. Adverse selection can be defined as a situation where:

A.
B.
C.
D.

Question

4. Which of the following is an example of adverse selection?

A.
B.
C.
D.

Question

5. George Akerlof’s famous example of adverse selection was:

A.
B.
C.
D.

Question

6. In George Akerlof’s famous example, there is information asymmetry related to:

A.
B.
C.
D.

Question

7. In George Akerlof’s model of the used car market, a seller knows ________ and a buyer knows ________.

A.
B.
C.
D.

Question

8. Consider this scenario: buyers of used pianos know the quality of the average used piano, so they are only willing to pay a price for a used piano that is consistent with this average quality. As a result, owners of used pianos of higher-than-average quality leave the market. This reduces average quality and the price buyers are willing to pay, driving more used pianos out of the market. This process continues until only the worst used pianos are left in the market. This process is referred to in the video as:

A.
B.
C.
D.

Question

9. George Akerlof’s model showed that adverse selection could cause the used car to ________. In reality, the used car market is ________.

A.
B.
C.
D.

Question

10. How do you explain the discrepancy between George Akerlof’s model of the used car market and the actual used car market?

A.
B.
C.
D.