Two consequences of asymmetric information are adverse selection and moral hazard. An important distinction between the two is OA moral hazard exists prior to the completion of a transaction while adverse selection occurs after the transaction is completed. B. adverse selection leads to an inefficient quantity while moral hazard leads to an efficient quantity C. adverse selection exists prior to the completion of a transaction while moral hazard occurs after the transaction is completed. D. moral hazard leads to an inefficient quantity while adverse selection leads to an efficient quantity
Q: The graph shown portrays a subsidy to buyers. After the subsidy is in place, the post-subsidy price…
A: The graph shown portrays a subsidy to buyers. After the subsidy is in place, the post-subsidy price…
Q: The late economist Harvey Leibenstein argued that the loss of economic efficiency in industries that…
A: Perfect competition is market where there are very large number of firms . All firms are identical…
Q: In your view, what are the major economic challenges facing our society and, in particular, your…
A: Economic challenges refers to the challenges in the economy like hyper inflation, unemployment , low…
Q: In order to have money available for replacing their family vehicle, a couple planned to have…
A: The future worth of a growing annuity, also known as the future value of a growing annuity (FVGA),…
Q: AN INCREASE IN INCOME UPON THE DEMAND CURVE OF AN INFERIOR GOOD
A: Inferior goods are a category of goods in economics that exhibit an inverse relationship between…
Q: (a) What is the own price elasticity of demand for bicycles? Would a firm selling bicycles at the…
A: Price elasticity is defined as the responsiveness of the quantity demanded to the price…
Q: Suppose the fixed interest rate on a loan is 5.75% and the rate of inflation is expected to be…
A: Inflation is the sustained increase in the general price level of goods and services in an economy…
Q: 3. Suppose we are considering fire hydrants in a small neighborhood. For simplicity, assume that…
A: Public goods refers to goods that are both non-rival and non-excludable.Non-rival is a property of…
Q: f you advertise and your rival advertises, you each will earn $4 million in profits. If neither of…
A: A game consists of players, strategies and their respective payoffs. Strategies are action plans…
Q: Which of the following statements can be drawn from this diagram? a. Point C represents a lower…
A: An isoprofit curve is a graphical representation that shows all the combinations of two factors of…
Q: Using the midpoint method, your price elasticity of demand as the price of pizzas increases from $14…
A: Elasticity of demand is a measure of the responsiveness or sensitivity of the quantity demanded of a…
Q: Let W be an estimator of a population characterisitc 7. If > E (W). W will under-estimate the…
A: This can be described as a set of individuals or people that encompass a complete set of…
Q: Milford Industries provides medical equipment oncology and surgical units major hospitals. Les…
A: An indirect cost rate is also known as indirect cost allocation rate or overhead rate. It is a…
Q: An entrepreneur creates a product that costs $25 to make, but no customer is willing to pay more…
A: Value creation refers to the process of enhancing the value of a product by improving its features,…
Q: There are n firms producing a good which compete over quantities. The market share of firm 1 is 0.3…
A: The study and evaluation of corporate financial concerns using abstract economic concepts and ideas…
Q: The following graph shows the market for cars in 2015. Between 2015 and 2016, the equilibrium price…
A: A state of balance in the market where the supply of a particular good or service matches its demand…
Q: Suppose that wine industry has very strong external increasing return to scales (IRS). France is the…
A: As returns to scale increase, the cost per unit of output decreases as the business grows. This…
Q: Assuming a $6 per unit tax is imposed, what will be the quantity traded? (a) 4 (b) 8…
A: Whenever the government imposes a tax on a product, the production cost of that product increases.…
Q: Which of the following would be one of the factors that shift the aggregate demand curve? A change…
A: Aggregate demand is the total demand for goods and services within an economy at a given price level…
Q: Although most economic decisions in today's societies are made through the market, it is not always…
A: A mixed economy is a type of economy where the government and the private sector make the economic…
Q: In 2020, the average price of a meal was $16.04 in Boston and $21.01 in New York. In 2022, the…
A: In 2020, Average Price of Meal in Boston = $16.04In 2020, AveragePrice of Meal in New York =…
Q: After grauating with a BBA in Economics, Dwight is considering going to college to get a Ph. D. in…
A: Explicit cost is the cost which is actually incurred by the firm, during production. The firm adds…
Q: 1) Suppose that, relative to month 1, the price of good y falls, the price of good x remains the…
A: Budget constraint shows different combination of two goods that consumer can purchase using all of…
Q: Classical economists think prices and quantities respond to supply and demand and the economy…
A: Keynesian economics believes that the total spending by the economy drives the aggregate demand in…
Q: Some countries rely relatively heavily on taxes that distort economic behavior and others do not. A…
A: Governmental levies known as distortionary taxes influence people's economic behavior by providing…
Q: The table below shows the values for several different components of GDP. Billions of Dollars $ 280…
A: National Income accounting is a system to track and measure a country's economic activity over a…
Q: O A. an increase in equilibrium quantity but a decrease in price. OB. an increase in equilibrium…
A: Given the decrease in demand for campus pies and the increase in campus dining rents, we can analyze…
Q: To compensate for trade imbalances, a rising trade surplus will cause capital inflows to rise / fall…
A: An interest rate is the cost or price of borrowing money or the return earned on an investment. It…
Q: If the profit-maximizing pure monopolist whose information is in the accompanying table is able to…
A: Price discrimination is a practice of charging different prices for same good to different…
Q: There are limited resources to satisfy all of society's wants. Oscarcity O entrepreneurship O…
A: A resource is whatever can be utilized to satisfy a need or want. Resources can be natural, like…
Q: A young person entering the job market may be talented or untalented.Suppose that one-quarter of…
A: A game consists of players, strategies and payoff. A strategy is a set of possibilities that a…
Q: At the end of what time period would the present equivalent P = 7500 (P/A, 7%, 11) occur?
A: The Uniform Series Present Worth Factor (USPWF), also known as the P/A factor is a conversion factor…
Q: O a. sets the Discount Rate b. sets the requirement for purchasing equities c. sets margin…
A: Central bank refers to the institution that uses its monetary policy to maintain economic stability…
Q: Year x V 2000 62 143 2001 5.7 156 2002 5.3 162 The data in Table 1A.2.1 shows that Select one: a.…
A: Negative relationship: When one variable decreases and another variable increases the two variables…
Q: Several advertisements announce that the price of hand sanitizer will be decreasing next month. At…
A: A change in demand refers to a shift in the entire demand curve for a particular good or service. It…
Q: The following data is provided for a PPP project. To the People To the Government Benefits…
A: The benefit-cost ratio (BCR) is an indicator showing the relationship between the relative costs and…
Q: Assume that the /S-MP model on the right shows an economy that was in long-run macroeconomic…
A: Economics refers to the social science that studies the production, distribution, and consumption of…
Q: Which of the following is NOT true about Gross Domestic Product (GDP) O GDP is the dollar value of…
A: National Income Accounting is a systematic and comprehensive framework used to measure and analyze…
Q: STATEMENT 1: a rise in risk premium will cause bond market prices to rise? true or false?
A: NOTE - Since you have posted a question with multiple sub parts, we will provide the solution only…
Q: solve all plea
A: Hi there , as per our guidelines we can solve only 1 question at a time . So we are solving Ques 2-2…
Q: Short-Run Cost Consider a firm with the Cobb-Douglas production function F (K, L) = K 1/3 L1/2…
A: Production function refers to the mathemathical equation that shows the technological relationship…
Q: Suppose that an economy's consumption function is given as: C = 2000 + 0.6Yd. By how much would…
A:
Q: (c) Suppose initially, pz = 1, Py = 3, I = 16 and x, = 2. What is the individual's maximum utility?
A: The Stone-Geary utility function is given as px is 3, I is 16 and x0 is 2.
Q: A. Suppose the equilibrium price in the market is $24 and the price elasticity of demand for the…
A: Elasticity of demand is a measure of how responsive the quantity demanded of a good or service is to…
Q: Which of the following conditions holds in an economically efficient competitive market equilibrium?…
A: Economic efficiency occurs when resources are allocated in a way that maximizes overall societal…
Q: What is the profit.
A: Profit is the leftover amount after subtracting total costs from total revenue. Profit can be of…
Q: If a country experienced nominal GDP growth of 8% over the two period when it faces inflation of 5%,…
A: Macroeconomic monitoring will remain critical since it determines the economy's final expansion path…
Q: QUESTION 1 Given a demand curve of P = 142-4Qd and supply of P = 49 +4Qs, find the equilibrium price…
A: Demand in economics refers to the quantity of a product or service that consumers are willing and…
Q: Does a price ceiling change the equilibrium price?
A: Price control is an economic policy followed by the government to set a minimum or maximum price for…
Q: D Question 14 A shipment of some concrete beams contains a certain number of defective beams. A…
A: The question pertains to the process of selecting a subset of items, specifically, concrete beams,…
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
- The evidence is overwhelming that obesity generates demand for more joint replacements.O .A) This is an ex-post moral hazard problem, user fees will solve the problem.O. B) This is an ex-ante moral hazard problem, incentives for obesity reduction, such as subsidies for exercise, may alleviate the problem.O. C) This is cherry-picking by orthopaedic surgeons.O. D) Since this is adverse selection, the total cost of a public insurance system will not be affected.OE) This is an ex-post moral hazard problem, co-insurance will solve the problem.Multiple Choice Adverse selection describes a situation where an individual's demand for insurance is positively correlated with the individual's risk of loss. Adverse selection occurs when someone increases their exposure to risk when insured. This can happen, for example, when a person takes more risks because someone else bears the cost of those risks. The relationship between smoking status and mortality provides a good illustration for adverse selection, especially in the case in which a life insurance company did not vary its premiums according to smoking status of its customers. To counter the effects of adverse selection, insurers may offer premiums that are proportional to a customer's risk.Suppose the demand for anxiety medication prescriptions is given by P = 300 – Q. Suppose the marginal cost for a prescription of anxiety medicine is constant at $100 per prescription. a. What is the quantity demanded in the absence of any insurance coverage for anxiety medication? b. Now, suppose there is full insurance coverage for anxiety medication (i.e. no cost-sharing at all). What is the new quantity demanded? c. Finally, suppose insurance covers anxiety medication, but there is 20% coinsurance, meaning that individuals must pay 20% of the cost of anxiety medication out of pocket. What is the new quantity demanded? d. Under the insurance structure given in part (c), what is the deadweight loss associated with the presence of insurance coverage?
- Which of the following statements is FALSE regarding the concept of "adverse selection"? Multiple Choice Adverse selection describes a situation where an individual's demand for insurance is positively correlated with the individual's risk of loss. Adverse selection occurs when someone increases their exposure to risk when insured. This can happen, for example, when a person takes more risks because someone else bears the cost of those risks. The relationship between smoking status and mortality provides a good illustration for adverse selection, especially in the case in which a life insurance company did not vary its premiums according to smoking status of its customers. To counter the effects of adverse selection, insurers may offer premiums that are proportional to a customer's risk.Provide an intuitive discussion of how adverse selection affects the used-car market. Describe one potential signal that can help alleviate the problem of adverse selection in this market and discuss how this signal satisfies the two necessary assumptions for it to be used as a credible signal.Suppose there are two types of people, high risk (H) and low risk (L) with utility function U(c) = c0.5 Each has income (=consumption) of $100. The high risk people are 10% of the population and have a 75% chance of getting cancer in which case their income would be zero. The low risk people are the remainder of the population and have a 25% chance of getting cancer and hence zero income. The private insurance industry is perfectly competitive. Insurers are afraid the government will take over the industry and decide to price in a different way. Mindful of the social consequences they will price so that the high risk is fully insured. What condition must be placed on the low-risk for this to be an equilibrium? What is the expected utility of the low-risk given the condition?
- Suppose in a given state's new insurance marketplace, with community rating and no restrictions on who can buy at the community rate, the risk pool (distribution of expected health costs) is as follows: 30% of eligible enrollees' expected health costs = $1,000 (per year)65% of eligible enrollees' expected health costs = $2,0005% of eligible enrollees' expected health costs = $10,000 Now suppose one insurer, and one insurer only, were allowed to offer any premium it wanted to any potential buyer and to exclude those it did not want to cover? What premium would they likely charge and who would they sell to and who would they exclude? What would happen to the other insurers? Does this help you see why the ACA was written to apply to all insurers?18.5 Suppose there is a 50–50 chance that an individual with log- arithmic utility from wealth and with a current wealth of $20,000 will suffer a loss of $10,000 from a car accident. Insur- ance is competitively provided at actuarially fair rates. Compute the outcome if the individual buys full insurance. Compute the outcome if the individual buys only partial insurance covering half the loss. Show that the outcome in part (a) is preferred. Now suppose that individuals who buy the partial rather than the full insurance policy take more care when driv- ing, reducing the damage from loss from $10,000 to $7,000. What would be the actuarially fair price of the partial policy? Does the individual now prefer the full or the partial policy?Use the following information for questions 12-14. Assume that there are two parties, I and V. I engages in an activity that tends to injure V. V and I both can take care to reduce the expected harm from accidents. Specifically, suppose that if I takes no care (i.e., spends $0 on accident precautions), expected injury to V is $25. If I spends $5 on accident precautions, however, the expected injury to V is reduced to $18. Further suppose that V has a choice between taking no care or spending $4 in care to avoid accidents. If V spends $4 in care, V’s expected harm falls by $2 regardless of the level of care that I takes. Assume that courts adopt the socially-optimal level of injurer care as the negligence standard. That is, if I takes less than the socially-optimal level of care, she will be found negligent and must pay for all damages toV. If I takes at least the socially optimal level of care, she will not have to compensate V for his damages. Under a negligence standard, what is…
- Use the following information for questions 12-14. Assume that there are two parties, I and V. I engages in an activity that tends to injure V. V and I both can take care to reduce the expected harm from accidents. Specifically, suppose that if I takes no care (i.e., spends $0 on accident precautions), expected injury to V is $25. If I spends $5 on accident precautions, however, the expected injury to V is reduced to $18. Further suppose that V has a choice between taking no care or spending $4 in care to avoid accidents. If V spends $4 in care, V’s expected harm falls by $2 regardless of the level of care that I takes. Assume that courts adopt the socially-optimal level of injurer care as the negligence standard. That is, if I takes less than the socially-optimal level of care, she will be found negligent and must pay for all damages toV. If I takes at least the socially optimal level of care, she will not have to compensate V for his damages. Under a negligence standard, what are…Use the following information for questions 12-14. Assume that there are two parties, I and V. I engages in an activity that tends to injure V. V and I both can take care to reduce the expected harm from accidents. Specifically, suppose that if I takes no care (i.e., spends $0 on accident precautions), expected injury to V is $25. If I spends $5 on accident precautions, however, the expected injury to V is reduced to $18. Further suppose that V has a choice between taking no care or spending $4 in care to avoid accidents. If V spends $4 in care, V’s expected harm falls by $2 regardless of the level of care that I takes. Assume that courts adopt the socially-optimal level of injurer care as the negligence standard. That is, if I takes less than the socially-optimal level of care, she will be found negligent and must pay for all damages to V. If I takes at least the socially optimal level of care, she will not have to compensate V for his damages. What is the Nash equilibrium of this…Faustian health economics. Consider Figure 11.10, which shows the locus of feasible contracts for the population of the nation of Pcoria. In which corner of this diagram (northeast, southeast, northwest, or southwest) is utility highest for consumers? What prevents insurance companies from offering contracts in this corner? On your own version of Figure 11.10, plot new points to represent where the market would be under (i) a nationally mandated full insurance policy and (ii) an insurance ban. (Please draw a diagram) Would a nationally mandated full insurance policy be optimal for Pcoria? What about an insurance ban? Suppose the devil approaches the newly elected president of Pcoria with an unusual bargain. He offers to magically eliminate moral hazard, but in return, Pcoria must forbid contracts that are more than half full. On a new version of Figure 11.10, draw a new locus of the contracts that would be feasible if the president takes the devil's bargain. Should the president take…