Question 1

Which of the following is not a problem in health-care markets?

Accepted Answer

A)  Hospitals are not trying to maximize their profit. 
B)  asymmetric information 
C)  public-health externalities 
D)  a missing insurance market 
E)  None of the above answers is correct; that is, all the answers are problems in health-care markets. 
A)  Hospitals are not trying to maximize their profit. 
B)  asymmetric information 
C)  public-health externalities 
D)  a missing insurance market 
E)  None of the above answers is correct; that is, all the answers are problems in health-care markets.

Question 2

In the market for health care services,Health Maintenance Organizations

Accepted Answer

A)  exist to insure people with pre-existing medical conditions. 
B)  overprovide medical care and thereby result in increased costs. 
C)  help overcome adverse selection by enrolling only healthy clients. 
D)  help overcome moral hazard by monitoring the quality of the service. 
E)  None of the above answers is correct. 
A)  exist to insure people with pre-existing medical conditions. 
B)  overprovide medical care and thereby result in increased costs. 
C)  help overcome adverse selection by enrolling only healthy clients. 
D)  help overcome moral hazard by monitoring the quality of the service. 
E)  None of the above answers is correct.

Question 3

The missing insurance market in health care is the insurance market for

Accepted Answer

A)  young healthy people. 
B)  infectious diseases. 
C)  people who have pre-existing health problems. 
D)  people in Health Maintenance Organizations. 
E)  vaccinations. 
A)  young healthy people. 
B)  infectious diseases. 
C)  people who have pre-existing health problems. 
D)  people in Health Maintenance Organizations. 
E)  vaccinations.

Question 4

A safe drive is likely to prefer an auto insurance policy that has a ________ deductible and a ________ premium.

Accepted Answer

A)  high; high 
B)  high; low 
C)  low; high 
D)  low; low 
E)  None of the above answers is correct because private information has no effect in the market for auto insurance. 
A)  high; high 
B)  high; low 
C)  low; high 
D)  low; low 
E)  None of the above answers is correct because private information has no effect in the market for auto insurance.

Question 5

Adverse selection is created by

Accepted Answer

A)  incentives to change behavior after two parties have reached an agreement. 
B)  risk. 
C)  signaling. 
D)  taxes. 
E)  private information. 
A)  incentives to change behavior after two parties have reached an agreement. 
B)  risk. 
C)  signaling. 
D)  taxes. 
E)  private information.

Question 6

In the used car market with warranties,the equilibrium is a ________ and there is ________.

Accepted Answer

A)  pooling equilibrium; inefficiency, partly because of oversupply of good cars 
B)  pooling equilibrium; inefficiency, partly because of oversupply of lemons (poor quality used cars) 
C)  separating equilibrium; no inefficiency 
D)  separating equilibrium; inefficiency, partly because of oversupply of lemons (poor quality used cars) 
E)  pooling equilibrium; no inefficiency 
A)  pooling equilibrium; inefficiency, partly because of oversupply of good cars 
B)  pooling equilibrium; inefficiency, partly because of oversupply of lemons (poor quality used cars) 
C)  separating equilibrium; no inefficiency 
D)  separating equilibrium; inefficiency, partly because of oversupply of lemons (poor quality used cars) 
E)  pooling equilibrium; no inefficiency

Question 7

Vaccination against infectious diseases ________ so private markets will provide ________ efficient quantity of vaccination.

Accepted Answer

A)  is a public good; less than 
B)  is a public good; the 
C)  leads to adverse selection; less than 
D)  has a positive externality; less than 
E)  has a positive externality; the 
A)  is a public good; less than 
B)  is a public good; the 
C)  leads to adverse selection; less than 
D)  has a positive externality; less than 
E)  has a positive externality; the

Question 8

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 9

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.

Question 10

Suppose there are only two kinds of cars in the market for used cars: lemons and good cars.A lemon is worth $1,000 both to its current owner and to anyone who buys it.A good car is worth $8,000 to its current and potential owners.Buyers can't tell whether a car is a lemon until after they have bought the car,and there is no warranty.What is the equilibrium price of a used car?

Accepted Answer

A)  $8,000 
B)  $1,000 
C)  $4,500 
D)  $9,000 
E)  The equilibrium price depends on how many lemons and how many good cars are traded. 
A)  $8,000 
B)  $1,000 
C)  $4,500 
D)  $9,000 
E)  The equilibrium price depends on how many lemons and how many good cars are traded.

Question 11

Explain the concept of adverse selection.Give an example.

Accepted Answer

Adverse selection is a tendency for peop

Question 12

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.

Question 13

Most college professors are granted tenure after six years of employment.Tenure implies a lifetime appointment.What problem does this situation create,and how can colleges minimize the problem?

Accepted Answer

Receiving a lifetime appointment creates

Question 14

If Sally drives less carefully after buying auto insurance,she illustrates

Accepted Answer

A)  adverse selection. 
B)  negative selection. 
C)  screening risk. 
D)  moral hazard. 
E)  lemon hazard. 
A)  adverse selection. 
B)  negative selection. 
C)  screening risk. 
D)  moral hazard. 
E)  lemon hazard.

Question 15

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 is 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 is correct.

Question 16

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 17

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.

Question 18

-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 19

If buyers cannot assess the quality of used cars and there are no warranties,

Accepted Answer

A)  only lemons are sold. 
B)  only good used cars are sold. 
C)  good cars are sold at a higher price than bad cars. 
D)  there is no adverse selection problem. 
E)  lemons and good cars sell for the same price. 
A)  only lemons are sold. 
B)  only good used cars are sold. 
C)  good cars are sold at a higher price than bad cars. 
D)  there is no adverse selection problem. 
E)  lemons and good cars sell for the same price.

Question 20

In the used car market without warranties,adverse selection results in

Accepted Answer

A)  sellers of "lemons" claiming that their car is a lemon. 
B)  only lemons being available for sale. 
C)  the market price of used cars equal to that of good used cars. 
D)  an efficient pooling equilibrium. 
E)  all of the above 
A)  sellers of "lemons" claiming that their car is a lemon. 
B)  only lemons being available for sale. 
C)  the market price of used cars equal to that of good used cars. 
D)  an efficient pooling equilibrium. 
E)  all of the above

Which of the following is not a problem in health-care markets?

In the market for health care services,Health Maintenance Organizations

The missing insurance market in health care is the insurance market for

A safe drive is likely to prefer an auto insurance policy that has a deductible and a premium.

Adverse selection is created by

In the used car market with warranties,the equilibrium is a and there is .

Vaccination against infectious diseases so private markets will provide efficient quantity of vaccination.

In the insurance market,private information

Life insurance companies often give applicants a physical examination to prevent

Explain the concept of adverse selection.Give an example.

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

Most college professors are granted tenure after six years of employment.Tenure implies a lifetime appointment.What problem does this situation create,and how can colleges minimize the problem?

If Sally drives less carefully after buying auto insurance,she illustrates

Health-care vouchers have been proposed.These vouchers would

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

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

-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.

If buyers cannot assess the quality of used cars and there are no warranties,

In the used car market without warranties,adverse selection results in

Getting Started

The U.S.and 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 is not a problem in health-care markets?

In the market for health care services,Health Maintenance Organizations

The missing insurance market in health care is the insurance market for

A safe drive is likely to prefer an auto insurance policy that has a ________ deductible and a ________ premium.

Adverse selection is created by

In the used car market with warranties,the equilibrium is a ________ and there is ________.

Vaccination against infectious diseases ________ so private markets will provide ________ efficient quantity of vaccination.

In the insurance market,private information

Life insurance companies often give applicants a physical examination to prevent

Explain the concept of adverse selection.Give an example.

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

Most college professors are granted tenure after six years of employment.Tenure implies a lifetime appointment.What problem does this situation create,and how can colleges minimize the problem?

If Sally drives less carefully after buying auto insurance,she illustrates

Health-care vouchers have been proposed.These vouchers would

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

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

-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.

If buyers cannot assess the quality of used cars and there are no warranties,

In the used car market without warranties,adverse selection results in

Getting Started

The U.S.and 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

A safe drive is likely to prefer an auto insurance policy that has a deductible and a premium.

In the used car market with warranties,the equilibrium is a and there is .

Vaccination against infectious diseases so private markets will provide efficient quantity of vaccination.

-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.