1) The free-rider problem occurs because

A) People who pay for information use it freely.

B) People who do not pay for information use it.

C) Information can never be sold at any price.

D) It is never profitable to produce information.

2) In the United States, the government agency requiring that firms that sell securities in public markets adhere to standard accounting principles and disclose information about their sales, assets, and earnings is the

A) Federal Public Service Commission.

B) Federal Trade Commission.

C) Securities and Exchange Commission.

D) Federal Reserve System.

3) Government regulations require publicly traded firms to provide information, resulting in

A) Reduced transactions costs.

B) The need for diversification.

C) Reduced adverse selection problems.

D) Economies of scale.

4) Because of the adverse selection problem,

A) Good credit risks are more likely to seek loans causing lenders to make a disproportionate amount of loans to good credit risks.

B) Lenders may refuse loans to individuals with high net worth, because of their greater proclivity to "skip town."

C) Lenders are reluctant to make loans that are not secured by collateral.

D) Lenders will write debt contracts that restrict certain activities of borrowers.

5) A problem for equity contracts is a particular type of ________ called the ________ problem.

A) Adverse selection; principal-agent

B) Moral hazard; free-rider

C) Adverse selection; free-rider

D) Moral hazard; principal-agent

Answer rating: 100% (QA)

1 B People who do not pay for information use ... View the full answer