SOLVED

21) Even if your college degree is irrelevant to an employer’s needs, your high GPA might still get you the job because A) the firm is not a profit maximizer. B) your GPA sends a signal about your quality as a worker. C) the firm will most likely make an adverse selection. D) the high GPA eliminates the possibility of moral hazard. 22) Signals are believable when the cost of sending a A) false signal is known to be low. B) false signal is known to be high. C) true or false signal is known to be low. D) true signal is known to be high. 23) A major function of incentive payments, guarantees, and signals is to enable markets to overcome the problem of A) irrational forecasting. B) efficient forecasting. C) private information. D) public information. 24) Your grade point average acts as ________ to potential employers. A) a signal B) a reservation price C) a guarantee D) insurance 25) Without warranties, used car buyers can assume that all used cars are “lemons” because of A) moral hazard. B) moral dilemma. C) adverse selection. D) adverse reaction. 26) In the used car market without warranties, adverse selection results in A) sellers of “lemons” claiming that their car is a lemon. B) only lemons being available for sale. C) the market price of used cars equal to that of good used cars. D) all of the above 27) Suppose that there are only two types of used cars, peaches and lemons. Peaches are worth $10,000, and lemons are worth $4,000. If the market is such that only lemons are sold, then used cars are A) experience goods and the used car market has effective signals. B) experience goods and the used car market lacks effective signals. C) not experience goods and the used car market has effective signals. D) not experience goods and the used car market lacks effective signals. 28) Suppose that there are only two types of used cars, peaches and lemons. Peaches are worth $10,000 and lemons are worth $4,000. Without effective signals such as warranties, the owners of peaches cannot sell their cars for $10,000 because the A) owners of peaches cannot convince buyers that their cars are worth $10,000. B) buyers cannot convince owners of peaches to sell their cars for $10,000. C) owners of lemons cannot convince buyers that their cars are worth more than $4,000. D) buyers cannot convince owners of lemons to sell their cars for $4,000. 29) Suppose that there are only two types of used cars, peaches and lemons and that used cars are pure experience goods. Peaches are worth $10,000, and lemons are worth $6,000. Three fourths of all used cars are peaches, and one fourth are lemons. In a market with no signals, for instance, a market without warranties, the average value of cars actually sold will be A) $6,000. B) $7,000. C) $9,000. D) $10,000. 30) Suppose there are only two kind of cars in the market for used cars: lemons and good cars. A lemon is worth $1,000 both to its current owner and to anyone who buys it. A good car is worth $8,000 to its current and potential owners. Buyers can’t tell whether a car is a lemon until after they have bought the car, and there is no warranty. What is the prevailing price of a used car? A) $8,000 B) $1,000 C) $4,500 D) The prevailing price depends on how many lemons and how many good cars are traded