finals

Question 1

offer competing explanation for the same observed behavior

Answer 1

moral hazard and adverse selection

Question 2

a type of moral hazard caused by the difficulty or cost of monitoring employees behavior

Answer 2

shringking

Question 3

refers to the reduced incentive to exercise case once you purchase insurance

Answer 3

moral hazard

Question 4

arise from hidden information

Answer 4

adverse selection

Question 5

arise from hidden action

Answer 5

moral hazard

Question 6

specialized bank that borrow ftom depositor

Answer 6

saving and loans institution

Question 7

ASI

Answer 7

auction services international

Question 8

wants an agent to act on her behalf

Answer 8

principal

Question 9

cost associated with moral hazard and adverse selection

Answer 9

agency cost

Question 10

atlernative for reducing agency cost (3)

Answer 10

changing decision right
transferring information
changing incentives

Question 11

arise in the normal course of business

Answer 11

incentive conflict

Question 12

where the manager is evaluated on division profit/revenue

Answer 12

profit center

Question 13

where the manager is evaluated on division average cost

Answer 13

cost center

Question 14

is a contentious issues for almost any company

Answer 14

transfer pricing

Question 15

conflict arise because two profit centers are each trying to extract profit from single profit

Answer 15

double markup or double marginalization

Question 16

one in which various division perform separate task such as production and sale

Answer 16

functionality organized firm

Question 17

one whose division perform all task necessary to serve customer of a particular product

Answer 17

M form firm

Question 18

also used by carbargains

Answer 18

auction

Question 19

bidders submit increasing bids

Answer 19

oral auction or english auction

Question 20

lead to higher winning bids

Answer 20

stronger losing bidders

Question 21

earn money by eliminating

Answer 21

cartel

Question 22

OBSERVATION ABOUT RIG RIGGING (3)

Answer 22

•collusion is more likely small, frequent auction that in big infrequent ones
•collusion is more likely oral auction than in sealed bid auction
•collusion is more likely when winning bidders and winning bids are identified

Question 23

(3) TO AVOID THE WINNER CURSE

Answer 23

1. to avoid the winner curse you bid as if everyone else thinks the value is less than your estimate
2. to avoid the winner curse you bid less aggressively as the number of bidder increase
3. oral auction returns higher prices in a common value setting that sealed bid auction

Question 24

IF COLLUSION IS SUSPECTED

Answer 24

1. do not hold open auction
2. do not hold small and frequent auction
3. do not announce the winners and the winning bids

Question 25

types of sealed bid auction in which bidder submit their bids without knowing the bids of other participants

Answer 25

vickrey auction or second price auction

Question 26

second price auction is to bid exactly your value

Answer 26

optimal strategy

Question 27

useful for auctioning off multiple unit

Answer 27

vickrey auction

Question 28

highest bidders win the item

Answer 28

first price auction/ sealed bid first price auction

Question 29

one of the most biggest challenges for an auctioneers

Answer 29

collusion/ bid rigging

Question 30

prevented foreign supplies from bidding

Answer 30

domestic current rules

Question 31

value is same for each bidder

Answer 31

common value auction

Question 32

does not mean you lost money in an auction

Answer 32

winner curse

Question 33

2 way to overcome obstacle

Answer 33

screening signaling

Question 34

the subject of this section

Answer 34

screening

Question 35

the subject of next section

Answer 35

signaling

Question 36

consumer values a lottery at it expected value

Answer 36

risk neutral

Question 37

consumer values a lottery at less than its expected value

Answer 37

risk adverse

Question 38

selection and protect your self against it

Answer 38

anticipate adverse

Question 39

are not serve because it is difficult to transact

Answer 39

low risk consumer

Question 40

represent a potentially profitable but unconsummated

Answer 40

adverse selection

Question 41

describes the effort of the less informed party

Answer 41

screening

Question 42

describes the effort of the more informed parties

Answer 42

signaling

Question 43

can also serve as signals

Answer 43

advertising and branding

Question 44

type of advertising the message of the advertisement less than the fact money

Answer 44

burning money

Question 45

FDICO

Answer 45

federal deposit insurance corporation

Question 46

ADVERSE SELECTION RESULTS (3)

Answer 46

1. insurance companies and low risk consumer 2. car buyer and seller with good cars 3. employers and hardworking employees

Question 47

can accomplish the same thing

Answer 47

exclusion

Question 48

a manufacturer of perishable food may want her product kept fresh and at a controlled temperature

Answer 48

quality control

Question 49

one example of incentive conflict in a vertical supply chain

Answer 49

double marginalization

Question 50

similar incentive conflict between retailers and manufacturer

Answer 50

new product introduction

Question 51

advertising, service, promotion activities and higher quality service can increase customer interest, awareness and sales

Answer 51

promotional activities

Question 52

another reason why retailers do not find it profitable to engage in promotional activities

Answer 52

free riding among retailers

Question 53

occur in supply chain because the same input is marked up multiple times

Answer 53

double marginalization problem