Question 1

Which of the following statements about health-care systems is correct?

Accepted Answer

A)  Most major nations do not have extensive government-funded insurance programs. 
B)  U.S. expenditure per person on health care is near the middle of the range of expenditures made in major nations. 
C)  Unlike other major nations, private health insurance is available only in the United States. 
D)  In the United States, Medicare and Medicaid account for slightly less than 90 percent of total expenditures on health care. 
E)  Every major country except the United States has a comprehensive national health-care system. 
A)  Most major nations do not have extensive government-funded insurance programs. 
B)  U.S. expenditure per person on health care is near the middle of the range of expenditures made in major nations. 
C)  Unlike other major nations, private health insurance is available only in the United States. 
D)  In the United States, Medicare and Medicaid account for slightly less than 90 percent of total expenditures on health care. 
E)  Every major country except the United States has a comprehensive national health-care system. E

Question 2

Adverse selection is the tendency for people who accept contracts to be those who

Accepted Answer

A)  buy goods and then regret it later. 
B)  buy goods for more than their own reservation price. 
C)  want to avoid the lemons problem. 
D)  plan to use private information to the disadvantage of the less well-informed party. 
E)  engage in a number of searches larger than that specified in the contract. 
A)  buy goods and then regret it later. 
B)  buy goods for more than their own reservation price. 
C)  want to avoid the lemons problem. 
D)  plan to use private information to the disadvantage of the less well-informed party. 
E)  engage in a number of searches larger than that specified in the contract. D

Question 3

Explain the concept of moral hazard.Give an example.

Accepted Answer

Moral hazard exists when one of the parties to an agreement has an incentive after the agreement made to act in a manner that brings additional benefits to himself or herself at the expense of the other party.Moral hazard arises because it is too costly for the injured party to monitor the actions of the advantaged party.For example,Bob hires Jack as a salesperson and pays him a fixed wage.Jack has an incentive to put the least possible effort,benefiting himself and lowering Bob's profits.

Question 4

Health-care vouchers have been proposed.These vouchers would

Accepted Answer

A)  cap total expenditure on health care but do nothing to solve the problem of uninsurance. 
B)  limit choice and would create long waiting times for health care service. 
C)  solve the problem of the doctor shortage but would not affect the problem of over spending on health care. 
D)  ensure universal coverage for health care and would cap total expenditure on health care. 
E)  None of the above answers are correct. 
A)  cap total expenditure on health care but do nothing to solve the problem of uninsurance. 
B)  limit choice and would create long waiting times for health care service. 
C)  solve the problem of the doctor shortage but would not affect the problem of over spending on health care. 
D)  ensure universal coverage for health care and would cap total expenditure on health care. 
E)  None of the above answers are correct.

Question 5

Of the following,the best example of private information is when

Accepted Answer

A)  Michael knows the price of a gallon of milk at the minimart but Michelle doesn't know. 
B)  you are selling a used car and you know your used car's defects but a potential buyer cannot find out about them until after buying. 
C)  you are selling a used car and you do not know your used car's defects 
D)  you don't know the quality of a used car and must hire a trained mechanic who tells you all its defects. 
E)  you pay the owner of a used car a little extra and she lets you know all of the car's defects. 
A)  Michael knows the price of a gallon of milk at the minimart but Michelle doesn't know. 
B)  you are selling a used car and you know your used car's defects but a potential buyer cannot find out about them until after buying. 
C)  you are selling a used car and you do not know your used car's defects 
D)  you don't know the quality of a used car and must hire a trained mechanic who tells you all its defects. 
E)  you pay the owner of a used car a little extra and she lets you know all of the car's defects.

Question 6

What is the missing insurance market in health care? Why don't private markets provide this insurance?

Accepted Answer

The missing market is the insurance mark

Question 7

________ occurs when an informed person takes an action to send information to an uninformed person and ________ occurs when an uninformed person creates an incentive for an informed person to reveal private information.

Accepted Answer

A)  Moral hazard; adverse selection 
B)  Adverse selection; moral hazard 
C)  Signaling; screening 
D)  Screening; signaling 
E)  Pooling; separating 
A)  Moral hazard; adverse selection 
B)  Adverse selection; moral hazard 
C)  Signaling; screening 
D)  Screening; signaling 
E)  Pooling; separating

Question 8

Dan,age 19,may have trouble buying auto insurance at a low price because insurance companies

Accepted Answer

A)  have private information that he is a risky driver. 
B)  have private information that his signals are valid. 
C)  fear that he has private information that his deductible is too high. 
D)  fear that he has private information that he is a risky driver. 
E)  operate in markets in which screening is inefficient. 
A)  have private information that he is a risky driver. 
B)  have private information that his signals are valid. 
C)  fear that he has private information that his deductible is too high. 
D)  fear that he has private information that he is a risky driver. 
E)  operate in markets in which screening is inefficient.

Question 9

The used car market without warranties suffers from

Accepted Answer

A)  perfect competition. 
B)  a separating equilibrium. 
C)  oligopoly. 
D)  adverse selection and moral hazard. 
E)  excessive signaling. 
A)  perfect competition. 
B)  a separating equilibrium. 
C)  oligopoly. 
D)  adverse selection and moral hazard. 
E)  excessive signaling.

Question 10

The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers.
-In a pooling equilibrium,there is ________ of insurance in the market for safe drivers and there is ________ of insurance in the market for aggressive drivers.

Accepted Answer

A)  overprovision; underprovision 
B)  overprovision; overprovision 
C)  underprovision; underprovision 
D)  underprovision; overprovision 
E)  underprovision; an efficient quantity 
A)  overprovision; underprovision 
B)  overprovision; overprovision 
C)  underprovision; underprovision 
D)  underprovision; overprovision 
E)  underprovision; an efficient quantity

Question 11

In the auto insurance market,who is most likely to have private information that leads to adverse selection?

Accepted Answer

A)  the government agency that regulates insurance companies 
B)  the insurance company 
C)  the drivers 
D)  the insurance company and the drivers 
E)  the government regulating agency and the insurance company 
A)  the government agency that regulates insurance companies 
B)  the insurance company 
C)  the drivers 
D)  the insurance company and the drivers 
E)  the government regulating agency and the insurance company

Question 12

Signals are believable when the cost of sending a ________ is known to be ________.

Accepted Answer

A)  false signal; low 
B)  false signal; high 
C)  true signal; low 
D)  true or false signal; low 
E)  true signal; high 
A)  false signal; low 
B)  false signal; high 
C)  true signal; low 
D)  true or false signal; low 
E)  true signal; high

Question 13

The lemons problem is caused by

Accepted Answer

A)  health-care providers' incentive to order unnecessary tests.. 
B)  used car buyers' inability to determine the quantity of used cars offered for sale. 
C)  auto insurance companies inability to adequately screen drivers. 
D)  the missing health care market. 
E)  government regulations than make some information private. 
A)  health-care providers' incentive to order unnecessary tests.. 
B)  used car buyers' inability to determine the quantity of used cars offered for sale. 
C)  auto insurance companies inability to adequately screen drivers. 
D)  the missing health care market. 
E)  government regulations than make some information private.

Question 14

Which of the following is an example of moral hazard?

Accepted Answer

A)  I hire you to work in my garden for a fixed fee, and you work hard all day. 
B)  I hire you to work at an hourly rate and you work as slowly as possible. 
C)  You apply for the job only because I pay a fixed wage per day, no matter how much or little you do. 
D)  You agree to be paid by the weed to work in my garden, and then you work hard. 
E)  You agree to be paid by the weed to work in my garden, and then you don't work hard. 
A)  I hire you to work in my garden for a fixed fee, and you work hard all day. 
B)  I hire you to work at an hourly rate and you work as slowly as possible. 
C)  You apply for the job only because I pay a fixed wage per day, no matter how much or little you do. 
D)  You agree to be paid by the weed to work in my garden, and then you work hard. 
E)  You agree to be paid by the weed to work in my garden, and then you don't work hard.

Question 15

The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers.
-The market for aggressive drivers is illustrated in ________ and the market for safe drivers is illustrated in ________.

Accepted Answer

A)  Figure A; Figure A also 
B)  Figure B; Figure A 
C)  Figure A; Figure B 
D)  Figure B; Figure B also 
E)  More information is needed to answer the question. 
A)  Figure A; Figure A also 
B)  Figure B; Figure A 
C)  Figure A; Figure B 
D)  Figure B; Figure B also 
E)  More information is needed to answer the question.

Question 16

Insurance companies

Accepted Answer

A)  pool risk and enable everyone to share the costs of bad outcomes. 
B)  never can earn a profit because they accept risk. 
C)  eliminate the risk of a bad outcome. 
D)  know who will have a bad outcome. 
E)  are risk averse. 
A)  pool risk and enable everyone to share the costs of bad outcomes. 
B)  never can earn a profit because they accept risk. 
C)  eliminate the risk of a bad outcome. 
D)  know who will have a bad outcome. 
E)  are risk averse.

Question 17

Moral hazard in the market for health-care services leads

Accepted Answer

A)  patients to adopt healthy life styles. 
B)  a separating equilibrium. 
C)  to all people buying health insurance. 
D)  to healthy people not buying health insurance. 
E)  to providers over treating patients.. 
A)  patients to adopt healthy life styles. 
B)  a separating equilibrium. 
C)  to all people buying health insurance. 
D)  to healthy people not buying health insurance. 
E)  to providers over treating patients..

Question 18

When Sam makes an agreement and then behaves after the agreement in a way to increase his benefits and harm then other party to the agreement,Sam is illustrating

Accepted Answer

A)  moral hazard. 
B)  adverse selection. 
C)  signaling. 
D)  the cost of contracting. 
E)  a pooling equilibrium. 
A)  moral hazard. 
B)  adverse selection. 
C)  signaling. 
D)  the cost of contracting. 
E)  a pooling equilibrium.

Question 19

-The figures show the expenditures per person on health care and the efficiency of the health care system in 8 different nations.The United States is bar ________ in expenditures per person and is bar ________ in efficiency index.

Accepted Answer

A)  A; A 
B)  B; A 
C)  A; D 
D)  E; E 
E)  D; B 
A)  A; A 
B)  B; A 
C)  A; D 
D)  E; E 
E)  D; B

Question 20

The tendency for people to enter into agreements in which they can use their private information to their own advantage and to the disadvantage of the less informed party is known as

Accepted Answer

A)  adverse selection. 
B)  a pooling selection. 
C)  moral hazard. 
D)  the market for oranges. 
E)  a signal. 
A)  adverse selection. 
B)  a pooling selection. 
C)  moral hazard. 
D)  the market for oranges. 
E)  a signal.

Which of the following statements about health-care systems is correct?

Adverse selection is the tendency for people who accept contracts to be those who

Explain the concept of moral hazard.Give an example.

Health-care vouchers have been proposed.These vouchers would

Of the following,the best example of private information is when

What is the missing insurance market in health care? Why don't private markets provide this insurance?

occurs when an informed person takes an action to send information to an uninformed person and occurs when an uninformed person creates an incentive for an informed person to reveal private information.

Dan,age 19,may have trouble buying auto insurance at a low price because insurance companies

The used car market without warranties suffers from

The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers. -In a pooling equilibrium,there is of insurance in the market for safe drivers and there is of insurance in the market for aggressive drivers.

In the auto insurance market,who is most likely to have private information that leads to adverse selection?

Signals are believable when the cost of sending a is known to be .

The lemons problem is caused by

Which of the following is an example of moral hazard?

The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers. -The market for aggressive drivers is illustrated in and the market for safe drivers is illustrated in .

Insurance companies

Moral hazard in the market for health-care services leads

When Sam makes an agreement and then behaves after the agreement in a way to increase his benefits and harm then other party to the agreement,Sam is illustrating

-The figures show the expenditures per person on health care and the efficiency of the health care system in 8 different nations.The United States is bar in expenditures per person and is bar in efficiency index.

The tendency for people to enter into agreements in which they can use their private information to their own advantage and to the disadvantage of the less informed party is known as

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Taxes

Global Markets in Action

Externalities

Public Goods and Common Resources

Consumer Choice and Demand

Production and Cost

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Markets for Factors of Production

Economic Inequality

Filters

Exam 12: Markets With Private Information

Which of the following statements about health-care systems is correct?

Adverse selection is the tendency for people who accept contracts to be those who

Explain the concept of moral hazard.Give an example.

Health-care vouchers have been proposed.These vouchers would

Of the following,the best example of private information is when

What is the missing insurance market in health care? Why don't private markets provide this insurance?

________ occurs when an informed person takes an action to send information to an uninformed person and ________ occurs when an uninformed person creates an incentive for an informed person to reveal private information.

Dan,age 19,may have trouble buying auto insurance at a low price because insurance companies

The used car market without warranties suffers from

The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers. -In a pooling equilibrium,there is ________ of insurance in the market for safe drivers and there is ________ of insurance in the market for aggressive drivers.

In the auto insurance market,who is most likely to have private information that leads to adverse selection?

Signals are believable when the cost of sending a ________ is known to be ________.

The lemons problem is caused by

Which of the following is an example of moral hazard?

The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers. -The market for aggressive drivers is illustrated in ________ and the market for safe drivers is illustrated in ________.

Insurance companies

Moral hazard in the market for health-care services leads

When Sam makes an agreement and then behaves after the agreement in a way to increase his benefits and harm then other party to the agreement,Sam is illustrating

-The figures show the expenditures per person on health care and the efficiency of the health care system in 8 different nations.The United States is bar ________ in expenditures per person and is bar ________ in efficiency index.

The tendency for people to enter into agreements in which they can use their private information to their own advantage and to the disadvantage of the less informed party is known as

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Taxes

Global Markets in Action

Externalities

Public Goods and Common Resources

Consumer Choice and Demand

Production and Cost

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Markets for Factors of Production

Economic Inequality

Filters

occurs when an informed person takes an action to send information to an uninformed person and occurs when an uninformed person creates an incentive for an informed person to reveal private information.

The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers. -In a pooling equilibrium,there is of insurance in the market for safe drivers and there is of insurance in the market for aggressive drivers.

Signals are believable when the cost of sending a is known to be .

The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers. -The market for aggressive drivers is illustrated in and the market for safe drivers is illustrated in .

-The figures show the expenditures per person on health care and the efficiency of the health care system in 8 different nations.The United States is bar in expenditures per person and is bar in efficiency index.