In an Illustrative Scenario Described in Chapter 5 of Your

question 124

Multiple Choice

In an illustrative scenario described in Chapter 5 of your text,a group of 12^th grade "whiz kids" in math,newly arrived to the United States from China,perform poorly on a test of 12^th grade math.According to the text,what probably accounted for this?

• A) lower standards in China as compared to the US for measuring math ability.
• B) higher standards in the US as compared to China for earning high grades.
• C) the ability of the Chinese students to read what was required in English.
• D) the reliability of the instrument used to test 12^th grade math skills.

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Definitions:

Moral Hazard

The tendency of individuals or institutions to take on more risk when they know that they will not have to bear the full consequences of their actions.

Adverse Selection

A situation where asymmetric information results in high-risk individuals being more likely to participate in agreements or contracts, to the detriment of one party.

Moral Hazard

The situation where one party is more likely to take risks because another party bears the consequences.

Incentives

Rewards or penalties that motivate individuals or entities to act in certain ways.