Chapter 10

1. What term best describes a firm informing customers about a product's benefits? a) Advertising b) Certification c) Disclosure d) Notice e) Broadcasting

c) Disclosure

33. Evaluating product quality can be accomplished by the use of which of the following? a) Status Reports b) Matchmakers c) Verification d) Report cards e) None of the above

d) Report cards

6. Products for which consumers cannot easily compare product characteristics and value information from others are called: a) Experience goods b) Search goods c) Retail goods d) Consumer goods e) Credence Goods

a) Experience goods

4. When consumers learn about many products at once, it is known as a: a) Simultaneous search b) Parallel search c) Serial search d) Sequential search e) Divided search

a) Simultaneous search

19. Which of the following is measured by a report card that assesses the components of a product? a) Process b) Inputs c) Warrantees d) Outcomes e) Longevity

b) Inputs

34. Which of the following is measured by a report card that assesses the quality of finished products? a) Process time b) Input costs c) Warranty claims d) Competitor pricing e) Total cost of manufacture

c) Warranty claims

26. Conflicts of interest in the certifier market often can lead to which of the following? a) Higher priced goods and services b) Lower competition between substitute goods c) A reduction in the number of competitive sellers d) Certification bias e) Less product choice for the consumer

d) Certification bias

8. Unraveling is an economic theory that describes which of the following? a) Low quality products will be quickly discovered and abandoned by buyers b) High seller concentration leads to the development of many substitute products c) Few sellers improve product quality once they have scale in production d) Even low quality sellers will disclose their product quality e) Consumers ultimately switch products regardless of quality

d) Even low quality sellers will disclose their product quality

27. Which of the following is a source for horizontal differentiation? a) Price b) Quality c) Advertising d) Location e) Availability of substitutes

d) Location

15. Which of the following is another term for "teaching to the test?" a) Sample bias b) Test variance c) Teaching discrimination d) Multitasking e) None of the above

d) Multitasking

17. Which of the following is measured by a report card that assesses product performance? a) Process b) Inputs c) Warrantees d) Outcomes e) Longevity

d) Outcomes

20. Why would a report card that measures inputs possibly lead to multitasking? a) Sellers would raise the price of goods with low quality inputs b) Consumers would only know the "ingredients" in a production process c) The cost of the report card would be passed on in lower product quality d) Sellers may invest only in reported inputs but scale back on unreported inputs e) Firms will not disclose poor report card scores

d) Sellers may invest only in reported inputs but scale back on unreported inputs

3. When consumers learn about one seller at a time it is known as a : a) Simultaneous search b) Parallel search c) Serial search d) Sequential search e) Divided search

d) Sequential search

18. Which of the following is measured by a report that assesses how a product is produced? a) Process b) Inputs c) Warrantees d) Outcomes e) Longevity

a) Process

13. Which of the following is a grade used to evaluate quality? a) Report card b) Status report c) Verification d) Warrantee claim e) Product statement

a) Report card

24. Which of the following is a statistical process in which raw outcome measures are adjusted for factors that are beyond the control of the seller? a) Risk adjustment b) Mean reversion c) Score adjustment d) Noise limiting e) Outcome adjustment

a) Risk adjustment

30. Why do consumers often rely on friend's advice when shopping for experience goods? a) They know their friend's tastes b) Friends are less likely to be biased reporters c) There are no search costs in seeking friend's advice d) Friends are always more accurate than unknown verifiers e) All friends share the common goal of highest quality

a) They know their friend's tastes

9. Which of the following serves as a voluntary signal of quality? a) Warrantee b) Independent reviews c) Truth in Advertising d) Free product financing e) Public claims

a) Warrantee

2. Which of the following best describes the consumer's shopping problem? a) Having enough money to purchase all necessary goods and services b) Finding the seller that offers the highest value of B - P c) Determining the quality of products d) Locating sellers that provide the required products e) Selecting between brand products and non-brand products.

b) Finding the seller that offers the highest value of B - P

32. Location can provide which of the following? a) Vertical differentiation b) Horizontal differentiation c) Isolation d) Customer switching costs e) Availability of substitutes

b) Horizontal differentiation

28. High quality certification in horizontally differentiated goods is aided by which of the following? a) Outcome based scorecards b) Internet firms like Google and Yahoo c) Risk adjustment d) Mean reversion e) Firms paying for more scorecards

b) Internet firms like Google and Yahoo

5. Products for which consumers can easily obtain the information required to compare alternatives are called: a) Experience goods b) Search goods c) Retail goods d) Consumer goods e) Credence Goods

b) Search goods

16. What term best refers to fundamental changes that lead to major shifts of competitive positions in a market? a) Jump b) Shock c) Alteration d) Bolt e) Shift

b) Shock

21. Which of the following would make an outcome report card difficult to produce? a) Large sample of outcome measures b) Small sample of outcome measures c) Many outcomes from one product d) Many sellers produce similar products e) Consumers purchase high quantities of the product

b) Small sample of outcome measures

10. When is a signal informative? a) When it is lightly advertised by the firm b) When it is more profitable for the high quality firm to offer it c) When there are many firms advertising substitute products d) When it is offered by the low quality firm e) When the first firm that signals is the low quality firm

b) When it is more profitable for the high quality firm to offer it

11. Why is advertising an effective signal of quality in an experience good? a) Consumers are uninformed and need advertising to provide information b) Advertising lists the qualities of a product c) Consumers believe firms that can afford to heavily advertise sell quality products d) Sellers can ignore low quality issues in their advertisements e) Consumers believe advertising more than word of mouth information

c) Consumers believe firms that can afford to heavily advertise sell quality products

23. Which of the following is not a reason for customer survey bias in quality measures? a) Different customers may use different measurement criteria b) Customers may have an incentive to inflate ratings to influence the average score c) Customers often lie in consumer surveys d) Customers are reluctant to leave negative feedback e) Consumer feedback is unverifiable.

c) Customers often lie in consumer surveys

14. Which of the following is not a way in which consumers can benefit from report cards? a) Easy identification of high quality sellers b) Increases in demand elasticity incent sellers to improve quality c) Good report cards lead to more advertising d) Report cards improve sorting by consumers e) Consumers can more easily identify quality sellers

c) Good report cards lead to more advertising

25. Which of the following would not reduce gaming of report cards? a) Reporting scores using simple graphics b) Using simple composite scores c) Making firms pay for report card results d) Measure quality at the most aggregate level e) Risk adjust report card scores

c) Making firms pay for report card results

35. Which of the following best describes a credence good? a) Products for which consumers can easily evaluate quality even after purchasing and using the product b) Products for which consumers rely on other purchasers' experience before buying c) Products for which consumers cannot easily evaluate quality even after purchasing and using the product d) Products for which consumers always, or almost always, purchase with a warranty e) None of the above

c) Products for which consumers cannot easily evaluate quality even after purchasing and using the product

29. Motivation bias and survivor bias are most common in which of the following? a) Input based scorecards b) Process based scorecards c) Scorecards on horizontally differentiated products d) Scorecards on vertically differentiated products e) Low cost products

c) Scorecards on horizontally differentiated products

12. Why do consumers tend to gravitate towards non-profit firms when evaluating credence goods? a) Consumers like giving to charities b) Non-profit firms charge lower prices c) Consumers can deduct some or all of the purchase price for tax purposes d) Non-profit firms offer goods and services not offered by for profit firms e) Consumers believe non-profit sellers will be less likely to skimp on quality for profit.

e) Consumers believe non-profit sellers will be less likely to skimp on quality for profit.

7. Products for which consumers cannot easily evaluate quality even after purchasing and using the product are called: a) Experience goods b) Search goods c) Retail goods d) Consumer goods e) Credence Goods

e) Credence Goods

31. What is a firm providing when it is informing customers about a product's benefits? a) Advertising b) Certification c) Distributing d) Notice e) Disclosure

e) Disclosure

22. Which of the following terms describes when firms with high scores tend to have more than their share of luck in rankings? a) Measurement bias b) Process error c) Mean regression d) Multitasking e) Mean reversion

e) Mean reversion