228 #
© 2014 Pearson Canada Inc.#
A lesson of the Enron collapse is that government regulation ____.
A) always fails
B) can reduce but not eliminate asymmetric information
C) increases the problem of asymmetric information
D) should be reduced
Answer: B
Diff: 3 Type: MC Page Ref: 168
Skill: Recall
Objective List: 8.1 Depict how asymmetric information results in adverse selection and moral
hazard
Adverse selection ____.
A) is a problem of symmetric information
B) occurs after the transaction
C) is not important in financial markets
D) why large firms are more likely to obtain funds from securities markets
Answer: D
Diff: 2 Type: MC Page Ref: 168
Skill: Recall
Objective List: 8.1 Depict how asymmetric information results in adverse selection and moral
hazard
That most used cars are sold by intermediaries (i.e., used car dealers) provides evidence that
these intermediaries ____.
A) have been afforded special government treatment, since used car dealers do not provide
information that is valued by consumers of used cars
B) are able to prevent potential competitors from free-riding off the information that they provide
C) have failed to solve adverse selection problems in this market because "lemons" continue to
be traded
D) have solved the moral hazard problem by providing valuable information to their customers
Answer: B
Diff: 3 Type: MC Page Ref: 169
Skill: Recall
Objective List: 8.1 Depict how asymmetric information results in adverse selection and moral
hazard
That most used cars are sold by intermediaries (i.e., used car dealers) provides evidence that
these intermediaries ____.
A) have solved the moral hazard problem created by the consumers of used cars
B) are not able to prevent others from free-riding off the information that they provide
C) help solve the adverse selection problem
D) Only sell "lemons"
Answer: C
Diff: 3 Type: MC Page Ref: 169
Skill: Recall
Objective List: 8.1 Depict how asymmetric information results in adverse selection and moral
hazard