Risk and Exclusion: Sample Quiz

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1. Many academicians struggle for months writing a paper that, if published, will be read by 100 people at most. These academicians feel that this work is valuable to them because it is a way of demonstrating, if they must search for a job, that they have remained intellectually active. What term have we used that best describes this activity?

Signaling
 Advertising
 Screening
 Marketing
 Searching

2. There is no market for grade insurance. Students cannot insure themselves from the hazard of getting low marks in a course. Which of the following would be a reason why such insurance is unavailable?

There would be free-rider problems.
 There would be problems of moral hazard and adverse selection.
 There would be problems of arbitrage.
 There would be hedging problems.

3. Firms are concerned with developing brand names. A reason for this concern is that firms:

need to signal quality.
 desire to avoid shirking.
 wish to avoid a welfare loss.
 have constant returns to scale.

4. In the late 1950s, several people blew up airliners in order to collect large life insurance policies that they had taken out on family members. These incidents are examples of:

creative destruction.
 moral hazard.
 the free-rider effect.
 implicit returns.

5. Piracy is a serious problem for the software industry. Computer programs are easily copied and distributed over the Internet. This piracy problem exists because software:


 has the problem of path dependency.
 as a product is not subject to signaling and screening.
 has characteristics very much like a public good.

6. Some creators of computer software sell their software as shareware. The software is made publicly available for people to try, and those who find it useful are supposed to pay. A serious problem facing shareware authors is:

arbitrage.
 hedging.
 moral hazard.
 free riding.
screening.

7. Outer Penuria is suffering from famine. Barry Griedy bought food after the last good harvest and is now selling it to the people for five times the amount he paid for it. Most economists argue that Griedy's actions:

are socially harmful because they exploit the poor.
 would not happen if there was not asymmetric information in the market.
 serve a useful purpose of moving food from a lower-valued use to a higher-valued use.
 serve no social purpose because they simply redistribute money in the way a zero-sum game does.

8. A person who buys low in one market while at the same time is selling the same thing in another market at a high price is engaged in:

speculation.
 signaling.
 entrepreneurship.
 arbitrage.

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Copyright Robert Schenk