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Practice Questions
Principal-Agent Problem Practice Questions
1. Which of the following is a case of the principal-agent problem?
*
a. The ice cream man offers you $3 for an ice cream cone. You think this is too high and try to convince him to lower the price to $2, but he won’t budge.
b. A car dealer tries to sell you a car. She lowers the price and throws in perks. What she doesn’t know is that the car is way outside your budget and there is no way you’ll buy it.
c. You pick one hotel over another because its website advertises having a pool. After you arrive, you find out the pool is closed for the season. If you’d known this, you would have picked the other hotel.
d. Your doctor could diagnose your symptom herself as part of your regular visit. But she receives a bonus for referrals, so she recommends you make an appointment with a specialist.
2. Which of the following is a result of the principal-agent problem?
*
a. You think you’re healthy and doctor’s visits are overpriced, so you don’t often go for a checkup.
b. You’ve never owned a car. Though the cost of a car would be affordable for you, you decide not to buy a car at all because of the cost of insurance for first-time drivers.
c. You want an accountant but fear they’ll charge you for a bunch of services you don’t really need, so you don’t hire one.
d. The airline you’re traveling with has a great track record so you decide not to purchase travel insurance.
3. Which of the following is NOT a case of the principal-agent problem successfully avoided?
*
a. You decide against hiring a certain mechanic when you hear from a friend that the mechanic swindles his customers. You choose a different mechanic certified by a third party consumer protection agency.
b. You decide against hiring a certain trainer when you hear from a friend about another trainer who charges less for similar work.
c. Before buying headphones, you check online reviews that say they tend to stop working after a few months. You decide to buy different headphones with much better reviews.
d. Prior to getting a repair on your house, you hire an inspector whose only job is to diagnose what work is needed. You then hire a contractor to do only that work.
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Dictionary of Economics
Course
(113 videos)
A
Absolute Advantage
Adverse Selection
Aggregate Demand
Aggregate Supply (Long Run)
Arbitrage
Practice Questions
Asymmetric Information
Austrian Business Cycle Theory
B
Banks
Bond Market
Budget Constraints
Business Fluctuations
Bundling
C
Capital Goods
Club Goods
Common Resource
Practice Questions
Coase Theorem
Comparative Advantage
Compensating Differentials
Conditional Convergence
Practice Questions
Consumer Surplus
Practice Questions
Crowding Out
Practice Questions
Cyclical Unemployment
D
Deadweight Loss
Practice Questions
Demand Curve
Discouraged Worker
Practice Questions
Division of Labor
E
Economic Growth
Efficient Market Hypothesis
Practice Questions
Elasticity of Demand
Elasticity of Supply
Equation of Exchange
Equilibrium (Price)
Externalities
F
Factor Income Approach
Practice Questions
Federal Funds Rate
Practice Questions
Financial Intermediaries
Practice Questions
Fiscal Multiplier
Fiscal Policy
Fisher Effect
Practice Questions
Free Rider Problem
Practice Questions
Frictional Unemployment
G
Great Depression
Great Recession
Gross Domestic Product
H
Human Capital
I
Incentives
Practice Questions
Indifference Curves
Inferior Goods
Practice Questions
Inflation
Institutions
Practice Questions
K
Keynesian Business Cycle Theory
L
Labor Force Participation
Leverage Ratio
Practice Questions
Life Cycle Theory of Savings
Practice Questions
Linear Regression
Loanable Funds Market
M
Marginal Product of Labor
Marginal Utility
Minimum Wage
Monetarist Business Cycle Theory
Monetary Offset
Practice Questions
Monetary Policy
Money
Money Multiplier
Monopoly
Mutual Funds
Practice Questions
N
National Spending Approach
Practice Questions
Natural Rate of Unemployment
Practice Questions
Nominal GDP
Normal Goods
Practice Questions
Nudges
O
Omitted Variable Bias
Practice Questions
Open Market Operations
Practice Questions
Opportunity Cost
Practice Questions
Outliers
P
Patents
Pigouvian Tax
Prediction Markets
Price Ceilings
Price Discrimination
Price Floors
Principal-Agent Problem
Practice Questions
Private Goods
Practice Questions
Producer Surplus
Practice Questions
Profit Maximization
Public Goods
Q
Quantity Theory of Money
R
Real Business Theory
Real GDP
Real GDP Per Capita
Real Interest Rate
Practice Questions
Real Shocks
Practice Questions
Rent Control
Ricardian Equivalence
Practice Questions
The Rule of 70
Practice Questions
S
Shadow Banks
Practice Questions
Signaling
Solow Model
Speculation
Stagflation
Practice Questions
Steady State
Sticky Wages
Structural Unemployment
Stock Market
Subsidies
Supply Curve
T
TANSTAAFL
Practice Questions
Tariffs
Taxes
Tragedy of the Commons
Tying
U
Unemployment
V
Velocity of Money