Asymmetric Information and Used Cars Practice Questions

For the following two situations, identify whether the scenario was caused by asymmetric information: Unrest in the Middle East causes oil speculators to buy up oil futures, driving gasoline prices higher. *

a. Asymmetric information induced

b. Not caused by asymmetric information

Joanne applies for a job as a part-time manager at a fast-food restaurant. Her MBA makes her overqualified for the job, yet the position goes to someone else who doesn’t have a college degree. *

a. Asymmetric information induced

b. Not caused by asymmetric information

Many states have laws like Virginia’s that give customers the right to keep or inspect parts that are removed by an auto mechanic. Does that help solve an asymmetric information problem? *

a. Yes

b. No

Alex’s band is about to take off, so he goes out and buys a brand new Marshall Tube Head and Cabinet amplifier for the list price of $4,500. As fate would have it, his band immediately breaks up after he uses it only once. (The drummer started dating the bass player’s ex-girlfriend.) He hangs on to it for a year or so in case the drummer and bass player can work out their differences, but it never happens. He finally decides to sell it on Craigslist. Since he know it’s been used only once, and it’s been properly stored for a year, he reasons that it’s still worth close to what he paid for it, so he lists it for $3,800- a 10% discount off the original price. Is it likely that Alex will sell the equipment at this price? *

a. Yes

b. No

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Asymmetric Information and Used Cars Practice Questions

Introduction

Supply, Demand, and Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Price Floors

Trade

Externalities

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Labor Markets

Public Goods and the Tragedy of the Commons

Asymmetric Information

Consumer Choice

Bonus Topics

Exam