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.

Question 2

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 3

The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers.
-In a separating 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)  an efficient quantity; an efficient quantity 
A)  overprovision; underprovision 
B)  overprovision; overprovision 
C)  underprovision; underprovision 
D)  underprovision; overprovision 
E)  an efficient quantity; an efficient quantity

Question 4

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.

Question 5

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 6

What is private information and what problems does it create?

Accepted Answer

Private information is informa

Question 7

Without warranties,used car buyers can assume that all used cars are "lemons" because of

Accepted Answer

A)  moral hazard. 
B)  false signals. 
C)  moral dilemma. 
D)  adverse selection. 
E)  adverse reaction. 
A)  moral hazard. 
B)  false signals. 
C)  moral dilemma. 
D)  adverse selection. 
E)  adverse reaction.

Question 8

Bill purchases property insurance for his office building,which includes coverage for fire damage.The policy offers premium discounts for smoke detectors,fire alarms,fire extinguishers and sprinkler systems.This is an incentive system to help avoid

Accepted Answer

A)  adverse selection. 
B)  adverse signals. 
C)  moral hazard. 
D)  screening. 
E)  None of the above answers is correct. 
A)  adverse selection. 
B)  adverse signals. 
C)  moral hazard. 
D)  screening. 
E)  None of the above answers is correct.

Question 9

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 10

In the market for used cars,the lemons problem means that owners of ________ cars have no incentive to offer them for sale because the market price is ________ than their marginal benefit.
A) good; more
B) bad; more
C) bad; less
D) fair; more
E) good; less

Accepted Answer

The answer of In the market for used cars,the lemons...

Question 11

Screening

Accepted Answer

A)  leads to a pooling equilibrium in the insurance market. 
B)  means an uninformed person passes knowledge to an informed person. 
C)  makes no-claim bonuses unnecessary. 
D)  explains why insurance companies offer low-premium, high-deductible policies and high-premium, low-deductible policies. 
E)  makes the insurance market inefficient. 
A)  leads to a pooling equilibrium in the insurance market. 
B)  means an uninformed person passes knowledge to an informed person. 
C)  makes no-claim bonuses unnecessary. 
D)  explains why insurance companies offer low-premium, high-deductible policies and high-premium, low-deductible policies. 
E)  makes the insurance market inefficient.

Question 12

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 13

Warranties in the used car market ________ the problem of private information thereby causing the price of good and bad used cars to ________.

Accepted Answer

A)  reduce; be the same 
B)  reduce; differ 
C)  magnify; be the same 
D)  magnify; differ 
E)  None of the above answers is correct because warranties have nothing to do with private information. 
A)  reduce; be the same 
B)  reduce; differ 
C)  magnify; be the same 
D)  magnify; differ 
E)  None of the above answers is correct because warranties have nothing to do with private information.

Question 14

How can a warranty at the seller's expense signal that a product is high quality?

Accepted Answer

If the product is low quality,the warran

Question 15

"People buy insurance to protect themselves from moral hazard." True or false? Explain.

Accepted Answer

The statement is false.In fact,insurance

Question 16

What role does moral hazard play in the market for health care?

Accepted Answer

Providers of health care have private in

Question 17

Moral hazard in the market for health-care services leads

Accepted Answer

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

Question 18

If a salesperson is paid by the volume of sales he or she makes,then the

Accepted Answer

A)  moral hazard problem is diminished. 
B)  lemons problem can be screened. 
C)  moral hazard problem is enhanced. 
D)  adverse selection problem is enhanced. 
E)  None of the above answers is correct. 
A)  moral hazard problem is diminished. 
B)  lemons problem can be screened. 
C)  moral hazard problem is enhanced. 
D)  adverse selection problem is enhanced. 
E)  None of the above answers is correct.

Question 19

Which of the following can create inefficiency and deadweight loss?

Accepted Answer

A)  Moral hazard can create inefficiency and deadweight loss but adverse selection cannot. 
B)  Adverse selection can create inefficiency and deadweight loss but moral hazard cannot. 
C)  Both moral hazard and adverse selection can create inefficiency and deadweight loss. 
D)  Neither moral hazard nor adverse selection can create inefficiency and deadweight loss. 
E)  None of the above answers is correct because whether inefficiency and deadweight loss are created depends on whether the moral hazard and adverse selection affect demanders or suppliers. 
A)  Moral hazard can create inefficiency and deadweight loss but adverse selection cannot. 
B)  Adverse selection can create inefficiency and deadweight loss but moral hazard cannot. 
C)  Both moral hazard and adverse selection can create inefficiency and deadweight loss. 
D)  Neither moral hazard nor adverse selection can create inefficiency and deadweight loss. 
E)  None of the above answers is correct because whether inefficiency and deadweight loss are created depends on whether the moral hazard and adverse selection affect demanders or suppliers.

Question 20

Compared to other major nations,the United States spends ________ on health care and achieves ________ efficiency.

Accepted Answer

A)  less; greater 
B)  more; about the same 
C)  less; less 
D)  more; less 
E)  about the same; less 
A)  less; greater 
B)  more; about the same 
C)  less; less 
D)  more; less 
E)  about the same; less

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

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

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

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

Private information

What is private information and what problems does it create?

Without warranties,used car buyers can assume that all used cars are "lemons" because of

Bill purchases property insurance for his office building,which includes coverage for fire damage.The policy offers premium discounts for smoke detectors,fire alarms,fire extinguishers and sprinkler systems.This is an incentive system to help avoid

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

In the market for used cars,the lemons problem means that owners of cars have no incentive to offer them for sale because the market price is than their marginal benefit. A) good; more B) bad; more C) bad; less D) fair; more E) good; less

Screening

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.

Warranties in the used car market the problem of private information thereby causing the price of good and bad used cars to .

How can a warranty at the seller's expense signal that a product is high quality?

"People buy insurance to protect themselves from moral hazard." True or false? Explain.

What role does moral hazard play in the market for health care?

Moral hazard in the market for health-care services leads

If a salesperson is paid by the volume of sales he or she makes,then the

Which of the following can create inefficiency and deadweight loss?

Compared to other major nations,the United States spends on health care and achieves efficiency.

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

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

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

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

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

Private information

What is private information and what problems does it create?

Without warranties,used car buyers can assume that all used cars are "lemons" because of

Bill purchases property insurance for his office building,which includes coverage for fire damage.The policy offers premium discounts for smoke detectors,fire alarms,fire extinguishers and sprinkler systems.This is an incentive system to help avoid

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

In the market for used cars,the lemons problem means that owners of ________ cars have no incentive to offer them for sale because the market price is ________ than their marginal benefit. A) good; more B) bad; more C) bad; less D) fair; more E) good; less

Screening

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.

Warranties in the used car market ________ the problem of private information thereby causing the price of good and bad used cars to ________.

How can a warranty at the seller's expense signal that a product is high quality?

"People buy insurance to protect themselves from moral hazard." True or false? Explain.

What role does moral hazard play in the market for health care?

Moral hazard in the market for health-care services leads

If a salesperson is paid by the volume of sales he or she makes,then the

Which of the following can create inefficiency and deadweight loss?

Compared to other major nations,the United States spends ________ on health care and achieves ________ efficiency.

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

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

In the market for used cars,the lemons problem means that owners of cars have no incentive to offer them for sale because the market price is than their marginal benefit. A) good; more B) bad; more C) bad; less D) fair; more E) good; less

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.

Warranties in the used car market the problem of private information thereby causing the price of good and bad used cars to .

Compared to other major nations,the United States spends on health care and achieves efficiency.