Question 1

One of the ways the market for used cars copes with the problems associated with private information is through the offering of

Accepted Answer

A) leases. 
B) warranties. 
C) low interest rates. 
D) high prices for high-quality used cars. 
E) low prices. 
A) leases. 
B) warranties. 
C) low interest rates. 
D) high prices for high-quality used cars. 
E) low prices. B

Question 2

Life insurance companies often give applicants a physical examination to prevent

Accepted Answer

A) moral hazard. 
B) screening. 
C) adverse selection. 
D) signaling. 
E) warranties. 
A) moral hazard. 
B) screening. 
C) adverse selection. 
D) signaling. 
E) warranties. C

Question 3

The idea of an insurance company "pooling" the risk means that

Accepted Answer

A) the risk is completely eliminated from society. 
B) the insurance company requires buyers to pay a large deductible. 
C) the risk is spread over a large population. 
D) the insurance company insists on a pooling equilibrium. 
E) moral hazard and adverse selection are eliminated. 
A) the risk is completely eliminated from society. 
B) the insurance company requires buyers to pay a large deductible. 
C) the risk is spread over a large population. 
D) the insurance company insists on a pooling equilibrium. 
E) moral hazard and adverse selection are eliminated. C

Question 4

Private information

Accepted Answer

A) can create adverse selection but plays no role in creating moral hazard. 
B) explains why drivers screen auto insurance companies. 
C) means that unless it is overcome, the equilibrium in the market will be a separating equilibrium. 
D) plays a role in the markets for health-care insurance and auto insurance. 
E) cannot explain why the U.S. expenditures on health care per person exceed those in other major nations. 
A) can create adverse selection but plays no role in creating moral hazard. 
B) explains why drivers screen auto insurance companies. 
C) means that unless it is overcome, the equilibrium in the market will be a separating equilibrium. 
D) plays a role in the markets for health-care insurance and auto insurance. 
E) cannot explain why the U.S. expenditures on health care per person exceed those in other major nations.

Question 5

Explain the concept of adverse selection.Give an example.

Accepted Answer

Adverse selection is a tendency for peop

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

-Moral hazard typically occurs because

Accepted Answer

A) people are dishonest. 
B) agreements sometimes create incentives that are costly to monitor so people can act in their self interest. 
C) workers possess diminishing marginal productivity. 
D) screening leads to informed people revealing their relevant private information. 
E) workers possess adverse selection. 
A) people are dishonest. 
B) agreements sometimes create incentives that are costly to monitor so people can act in their self interest. 
C) workers possess diminishing marginal productivity. 
D) screening leads to informed people revealing their relevant private information. 
E) workers possess adverse selection.

Question 8

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 9

In the insurance market, private information

Accepted Answer

A) creates moral hazard but eliminates adverse selection. 
B) creates adverse selection but eliminates moral hazard. 
C) creates both moral hazard and adverse selection. 
D) eliminates both moral hazard and adverse selection. 
E) means that screening is unnecessary. 
A) creates moral hazard but eliminates adverse selection. 
B) creates adverse selection but eliminates moral hazard. 
C) creates both moral hazard and adverse selection. 
D) eliminates both moral hazard and adverse selection. 
E) means that screening is unnecessary.

Question 10

Suppose that there are only two types of used cars, peaches and lemons.Peaches are worth $10,000, and lemons are worth $6,000.Three fourths of all used cars are peaches, and one fourth are lemons.In a market with no signals, for instance, a market without warranties, the average value of cars actually sold will be

Accepted Answer

A) $6,000. 
B) $7,000. 
C) $7,500. 
D) $9,000. 
E) $10,000. 
A) $6,000. 
B) $7,000. 
C) $7,500. 
D) $9,000. 
E) $10,000.

Question 11

Used car buyers believe a car is good quality when the seller signals the car's quality by offering a warranty because

Accepted Answer

A) car sellers would never lie. 
B) car buyers are gullible. 
C) signals lead to efficient pooling equilibriums. 
D) the signal cannot be false. 
E) a false signal can be costly to the seller. 
A) car sellers would never lie. 
B) car buyers are gullible. 
C) signals lead to efficient pooling equilibriums. 
D) the signal cannot be false. 
E) a false signal can be costly to the seller.

Question 12

JCPenney guarantees to refund a customer's money if the customer returns poorly made clothing.This guarantee is an example of

Accepted Answer

A) the adverse selection. problem. 
B) the moral hazard problem. 
C) the cost of risk. 
D) signaling. 
E) a lemon problem. 
A) the adverse selection. problem. 
B) the moral hazard problem. 
C) the cost of risk. 
D) signaling. 
E) a lemon problem.

Question 13

Because Don has health insurance, he is more likely to see the doctor when he has a cold.This is an example of

Accepted Answer

A) adverse selection. 
B) moral hazard. 
C) the lemons problem. 
D) both moral hazard and adverse selection. 
E) private information. 
A) adverse selection. 
B) moral hazard. 
C) the lemons problem. 
D) both moral hazard and adverse selection. 
E) private information.

Question 14

Which of the following has a positive externality and hence can be under provided?

Accepted Answer

A) chronically ill people are not allowed to buy insurance. 
B) health insurance purchased through an employer 
C) vaccination 
D) Health Maintenance Organizations 
E) None of the above have a positive externality. 
A) chronically ill people are not allowed to buy insurance. 
B) health insurance purchased through an employer 
C) vaccination 
D) Health Maintenance Organizations 
E) None of the above have a positive externality.

Question 15

In the used car market, adverse selection creates the lemon problem when

Accepted Answer

A) sellers cannot judge buyers' creditworthiness. 
B) buyers believe that sellers will offer only high-priced "good" used cars for sale.. 
C) buyers believe that sellers will sell only lemons. 
D) sellers offer warranties on all used cars. 
E) None of the above answers are correct because it is moral hazard that creates the lemon problem. 
A) sellers cannot judge buyers' creditworthiness. 
B) buyers believe that sellers will offer only high-priced "good" used cars for sale.. 
C) buyers believe that sellers will sell only lemons. 
D) sellers offer warranties on all used cars. 
E) None of the above answers are correct because it is moral hazard that creates the lemon problem.

Question 16

The fact that people who know they are risky drivers are more likely to buy auto insurance reflects

Accepted Answer

A) adverse selection.. 
B) moral hazard. 
C) a separating equilibrium. 
D) signaling. 
E) the lemons problem. 
A) adverse selection.. 
B) moral hazard. 
C) a separating equilibrium. 
D) signaling. 
E) the lemons problem.

Question 17

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.

Question 18

Auto insurance companies charge a lower premium to drivers who carry a higher deductible because

Accepted Answer

A) insurance companies are not profit maximizers. 
B) a driver's riskiness increases as the driver's deductible increases. 
C) a high deductible signals a high risk. 
D) insurance companies prefer that drivers carry no deductible. 
E) a high deductible reveals that driver is a careful driver. 
A) insurance companies are not profit maximizers. 
B) a driver's riskiness increases as the driver's deductible increases. 
C) a high deductible signals a high risk. 
D) insurance companies prefer that drivers carry no deductible. 
E) a high deductible reveals that driver is a careful driver.

Question 19

Even if your college degree is irrelevant to an employer's needs, your high GPA might still get you the job because

Accepted Answer

A) the firm is not a profit maximizer. 
B) your GPA screens some of your private information. 
C) your GPA sends a signal about your quality as a worker. 
D) the firm will most likely make an adverse selection. 
E) the high GPA eliminates the possibility of moral hazard. 
A) the firm is not a profit maximizer. 
B) your GPA screens some of your private information. 
C) your GPA sends a signal about your quality as a worker. 
D) the firm will most likely make an adverse selection. 
E) the high GPA eliminates the possibility of moral hazard.

Question 20

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.

One of the ways the market for used cars copes with the problems associated with private information is through the offering of

Life insurance companies often give applicants a physical examination to prevent

The idea of an insurance company "pooling" the risk means that

Private information

Explain the concept of adverse selection.Give an example.

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

-Moral hazard typically occurs because

Moral hazard in the market for health-care services leads

In the insurance market, private information

Used car buyers believe a car is good quality when the seller signals the car's quality by offering a warranty because

JCPenney guarantees to refund a customer's money if the customer returns poorly made clothing.This guarantee is an example of

Because Don has health insurance, he is more likely to see the doctor when he has a cold.This is an example of

Which of the following has a positive externality and hence can be under provided?

In the used car market, adverse selection creates the lemon problem when

The fact that people who know they are risky drivers are more likely to buy auto insurance reflects

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

Auto insurance companies charge a lower premium to drivers who carry a higher deductible because

Even if your college degree is irrelevant to an employer's needs, your high GPA might still get you the job because

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

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

One of the ways the market for used cars copes with the problems associated with private information is through the offering of

Life insurance companies often give applicants a physical examination to prevent

The idea of an insurance company "pooling" the risk means that

Private information

Explain the concept of adverse selection.Give an example.

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

-Moral hazard typically occurs because

Moral hazard in the market for health-care services leads

In the insurance market, private information

Used car buyers believe a car is good quality when the seller signals the car's quality by offering a warranty because

JCPenney guarantees to refund a customer's money if the customer returns poorly made clothing.This guarantee is an example of

Because Don has health insurance, he is more likely to see the doctor when he has a cold.This is an example of

Which of the following has a positive externality and hence can be under provided?

In the used car market, adverse selection creates the lemon problem when

The fact that people who know they are risky drivers are more likely to buy auto insurance reflects

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

Auto insurance companies charge a lower premium to drivers who carry a higher deductible because

Even if your college degree is irrelevant to an employer's needs, your high GPA might still get you the job because

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

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