Consider a used car market in which half the cars are good and half are bad (lemons). Suppose the average price of a good car is $9,000 and the average price of a lemon is $3,000. If rational buyers are willing to pay $6,000 for a used car, then sellers
will agree to sell mostly lemons at this price. What is the term used to describe this situation?
A) moral hazard
B) adverse selection
C) an efficient market
D) economic irrationality
Answer: B
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The Keynesian short-run aggregate supply curve in the simplified Keynesian model is unrealistic because
A) a vertical curve does not make economic sense. B) prices and wages will never decrease. C) the classical model is better in explaining how the economy operates. D) some price adjustments do take place in the short run.
The supply of foreign exchange to the United States is generated by the desire for foreigners to acquire dollars for all except one of the following reasons. Which is the exception?
a. The United States is considered a safe haven in times of political unrest. b. The dollar has long been accepted as an international medium of exchange. c. Foreigners want to buy U.S. assets. d. U.S. goods have become less attractive to foreigners. e. Foreigners wish to make cash gifts to family in the United States.
An analysis of market failure and government failure indicates
a. government decision making is always preferable to using markets. b. market decision making is always preferable to public-sector action. c. government action is necessary whenever market failure occurs. d. both the market and the government may fail to meet conditions of economic efficiency; in each individual case, the choice of market or public-sector action requires careful evaluation.
The fact that returns from the stock market are less volatile over long-periods of time suggests that:
A. stock market bubbles have become more common. B. stock markets are efficient. C. people get comfortable with the stocks they own. D. investors are more risk averse over the longrun.