Question 1

What do an optician and a lawyer share in common?

Accepted Answer

Both opticians and lawyers are required to have a valid occupational license from government regulators to legally practice their professions.

Question 2

If buyers become reluctant to purchase high-quality goods because they can't be confident of purchasing a high-quality product, then

Accepted Answer

When buyers are reluctant to purchase high-quality goods due to uncertainty about the product's quality, it leads to a decrease in demand for those goods. This situation can result in a "thin market," where there are fewer transactions, and both the equilibrium price and quantity can be negatively impacted as sellers may struggle to find buyers willing to pay the price for perceived high-quality goods.

Question 3

If a website facilitates the sale of goods by individuals and businesses over the internet, but requires actual photos of every item for sale to be posted instead of a manufacturer's stock picture of the product, the supply of products in good condition will likely __________ due to the improved information, causing price to __________ .

Accepted Answer

The requirement for actual photos improves information about the condition of goods, likely increasing the supply of products in good condition as sellers can prove their quality, which could lead to a decrease in price due to higher trust and potentially more competition among sellers of high-quality goods.

Question 4

A buyer confronted with _______________will often believe that the price being charged reveals something about the ____________ of the product.

Accepted Answer

Imperfect information about a product leads buyers to infer its quality from the price, as they lack complete knowledge about its characteristics.

Question 5

If a website facilitates the sale of goods by individuals and businesses over the internet, but requires actual photos of every item for sale to be posted instead of a manufacturer's stock picture of the product, both the demand and supply of products in good condition will shift due to the improved information. If supply shifts by more than demand, quantity will _____________ and price will _____________.

Accepted Answer

When supply shifts more than demand, the quantity increases due to more products being available, and the price decreases because the supply increase outweighs the demand increase, leading to a surplus.

Question 6

If a website facilitates the sale of goods by individuals and businesses over the internet, but requires actual photos of every item for sale to be posted instead of a manufacturer's stock picture of the product, demand for that product will likely ___________ due to the improved information, causing quantity to ___________ .

Accepted Answer

Requiring actual photos improves the information available to buyers, likely increasing their confidence in the product and thus increasing demand. As demand increases, the quantity of the product sold is also likely to increase.

Question 7

The government rules on advertising are enforced by the ________________________.

Accepted Answer

The Federal Trade Commission (FTC) is responsible for enforcing government rules on advertising, ensuring that advertisements are truthful and not misleading.

Question 8

Credit Union members who insure their mortgage debt to off-set the risk of loss of life will all ___________________________, and a Credit Union whose insured member suffers this type of loss will ________________________.

Accepted Answer

Credit Union members who insure their mortgage debt against the risk of loss of life make regular premium payments as part of the insurance agreement. If a member passes away, the Credit Union will receive payment from the insurance to retire the insured debt, meaning the outstanding mortgage balance is paid off by the insurance proceeds.

Question 9

All but one of the following is a mechanism intended to provide reassurance against imperfect information. Which is it?

Accepted Answer

Financial capital markets are platforms for trading financial securities and are not specifically a mechanism to provide reassurance against imperfect information.

Question 10

If a website facilitates the sale of goods by individuals and businesses over the internet, but requires actual photos of every item for sale to be posted instead of a manufacturer's stock picture of the product, demand and supply of products in good condition will shift due to the improved information. If the quantity demanded shifts by more than supply, quantity will likely ___________ and price will likely ___________.

Accepted Answer

With improved information, buyers are more confident in the quality of the products, increasing demand. If demand increases more than supply, both the quantity sold and the price will likely increase.

Question 11

In the labor market, a stipulation that the first three months of employment is a trial period is

Accepted Answer

This is a standard precaution against hiring a lemon, allowing employers to assess the performance and suitability of new hires within a specified period without long-term commitment.

Question 12

Which of the following would be the most beneficial to an internet retailer?

Accepted Answer

The answer of Which of the following would be the...

Question 13

Ryan lives in Iowa and is completing his fourth year of electrician apprenticeship training. After achieving journeyman status, what will Ryan require from his state government in order to practice his trade?

Accepted Answer

In order to practice his trade as an electrician after achieving journeyman status, Ryan will require an occupational license from his state government. This license is a regulatory requirement for individuals in certain professions, ensuring they meet specific standards of practice.

Question 14

Government regulations allow a manufacturer of natural weight loss products to advertise

Accepted Answer

The answer of Government regulations allow a manufacturer of natural...

Question 15

If U.S. auto manufacturers cut the prices of their vehicles to sell a greater quantity, buyers may assume that the lower price implies _____________ compared to foreign manufactured vehicles.

Accepted Answer

Buyers may perceive the lower price of U.S. auto manufacturers' vehicles as an indication of lower quality, especially in comparison to foreign manufactured vehicles, due to common assumptions that price correlates with quality.

Question 16

Automobile manufacturers use warranties as incentives for buyers to purchase their products. Why are warranties on vehicles important to buyers?

Accepted Answer

Warranties are important because they ensure that for a specific time period, the manufacturer is responsible for the cost of fixing or replacing parts of the vehicle that fail due to manufacturing defects, reducing the financial risk for the buyer.

Question 17

What do service contracts, occupational licenses and cosigners all share in common?

Accepted Answer

Service contracts, occupational licenses, and cosigners all help in reducing the risk of imperfect information by providing assurances or guarantees about the quality of a service, the qualifications of a professional, or the reliability of a borrower, respectively. They do not completely eliminate these risks but mitigate them.

Question 18

_____________________ can lead to a situation where, even if sellers are faced with a situation of _______________, they will decide not to cut prices for awhile because they know that buyers in this situation will not react by purchasing a _______________ .

Accepted Answer

Imperfect information can lead to sellers not reducing prices in the face of excess supply because they understand that buyers, lacking perfect information, may not respond by purchasing more, even at lower prices.

Question 19

When buyers use ___________________ to draw inferences about the quality of products, then markets may have trouble reaching _________________ and quantity.

Accepted Answer

The answer of When buyers use ___________________ to draw inferences...

Question 20

If a website facilitates the sale of goods by individuals and businesses over the internet, but requires actual photos of every item for sale to be posted instead of a manufacturer's stock picture of the product, both the demand and supply of products in good condition will shift due to the improved information, causing quantity to _________ and price to _______________.

Accepted Answer

The requirement for actual photos improves information about the condition of goods, likely increasing trust and reducing uncertainty for buyers, which can increase demand. For sellers, this transparency may encourage the listing of only those items that are in good condition, potentially affecting supply positively as well. Thus, the quantity of transactions is likely to increase. However, the effect on price is indeterminate without more information about the relative shifts in supply and demand.

Quiz 16: Information, Risk, and Insurance