EBK FOUNDATIONS OF ECONOMICS
8th Edition
ISBN: 9780134516196
Author: BADE
Publisher: PEARSON CO
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Chapter 12, Problem 2MCQ
To determine
To find:
The option that correctly explains that market in which lemon problems arises.
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1. Indicate which of the following describes a moral hazard problem and which describes adverse selection:
a. A person with a terminal illness buys several life insurance policies via the internet.
b. A person rides carelessly because he has motorcycle insurance.
c. A person who intends to burn down his house takes out a large fire insurance policy.
d. A woman who anticipates having a large family takes a job with a firm that offers exceptional childcare benefits.
Suppose instead the man’s neighbor, who is not a public servant, sees the man dangling from his 4th floor patio. The neighbor springs into action, busting down the man’s door and pulling him to safety from the patio. In gratitude, the man promises to Venmo his neighbor $50,000 for saving him. Is that promise enforceable?
a) No, because a promise made on account of something that the promisee has already done is not enforceable
b) Yes, because legal sufficiency has nothing to do with adequacy of consideration
c) Yes, because there was an offer that was accepted
d) No, because the man was obviously incompetent, because only a mindless idiot would have gotten stuck like that
5
3. Moral hazard in the market for healthcare services leads
Question content area bottom
Part 1
A.
to providers over treating patients..
B.
to healthy people not buying health insurance.
C.
patients to adopt healthy life styles.
D.
to all people buying health insurance.
E.a separating equilibrium.
Chapter 12 Solutions
EBK FOUNDATIONS OF ECONOMICS
Ch. 12 - Prob. 1SPPACh. 12 - Prob. 2SPPACh. 12 - Prob. 3SPPACh. 12 - Prob. 4SPPACh. 12 - Prob. 5SPPACh. 12 - Prob. 6SPPACh. 12 - Prob. 7SPPACh. 12 - Prob. 8SPPACh. 12 - Prob. 9SPPACh. 12 - Prob. 10SPPA
Ch. 12 - Prob. 11SPPACh. 12 - Prob. 1IAPACh. 12 - Prob. 2IAPACh. 12 - Prob. 3IAPACh. 12 - Prob. 4IAPACh. 12 - Prob. 5IAPACh. 12 - Prob. 6IAPACh. 12 - Prob. 7IAPACh. 12 - Prob. 8IAPACh. 12 - Prob. 9IAPACh. 12 - Prob. 1MCQCh. 12 - Prob. 2MCQCh. 12 - Prob. 3MCQCh. 12 - Prob. 4MCQCh. 12 - Prob. 5MCQCh. 12 - Prob. 6MCQCh. 12 - Prob. 7MCQ
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- 4. Consumers know that some fraction of all new cars produced and sold in the market are defective. The defective ones cannot be identified except by those who own them. Assume that cars do not depreciate in value with use. Suppose consumers are risk-neutral and value non-defective cars at $10,000 each and defective cars at $6,000 each. a. If consumers are willing to pay $8,000 for a new car, what percentage of new cars are defective? b. If you saw a used car for sale with a price tag of $6,500, would you purchase this car? c. How many used cars for sale in this market will be good cars?arrow_forwardGive typing answer with explanation and conclusion Many developing countries are severely in debt to developed countries. Interest on this debt pulls funds away from other projects that could improve social welfare. Activists have lobbied the U.S. government to forgive its loans to poor countries, but some argue that this would create a “moral hazard” problem. Explain why debt forgiveness might create a moral hazard problem. Is this a valid concern?arrow_forward1. In some blighted inner city neighborhoods, housing is inadequate, there are no large grocery stores, and no restaurants. The city is trying to recruit investors for each of these types of businesses. To do so the city will certainly need to overcome a(n) ________problem. Group of answer choices adverse selection incomplete market Imperfect information moral hazard 2. Suppose that a market is in equilibrium and there is no government intervention in the market. If the private marginal cost of producing an item is $6 and the social marginal cost of production is $4, there must be a _____ of $2. Group of answer choices mcd mpd mcb mpbarrow_forward
- 1. Explain, with the use of examples, the difference between public and private goods. a. Provide a real-world example of asymmetric information. Explain.arrow_forward(a)Explain what is meant by "asymmetric information." Identify and explain the twobasic types of problems that arise when there is asymmetric information.arrow_forward25. Which of the following is the best example of a moral hazard problem? Question 25 options: a) A borrower uses the proceeds of a business loan to gamble at a Las Vegas casino. b) A borrower decides to borrow at a fixed rather than a variable interest rate. c) A bank has difficulty in distinguishing between good and bad credit risks. d) A borrower makes all of her payments despite a downturn in her business.arrow_forward
- 1. When an auto insurance company is screening, it is A. attempting to keep its private information private. B. marketing its policies to customers. C. ignoring the possibility of moral hazard in order to minimize adverse selection. D. trying to determine if a driver is an aggressive driver or a safe driver. E. making its private information public. 2. In the market for health care services, Health Maintenance Organizations A. help overcome adverse selection by enrolling only healthy clients. B. exist to insure people with preexisting medical conditions. C. overprovide medical care and thereby result in increased costs. D. help overcome moral hazard by monitoring the quality of the service. E. None of the above answers are correct 3. Moral hazard in the market for healthcare services leads Question content area bottom Part 1 A. to providers over treating patients.. B. to healthy people not buying health insurance. C. patients to adopt healthy life styles. D. to all…arrow_forwardDraw 05 conclusions on the subprime case and compare it to the covid economic crisis.arrow_forwardImagine that you own your business. It does not need to be the same as in other questions, youare allowed to pick a different firm or product. Imagine further that you or your consumers facean asymmetric information problem. a.Please explain in detail what this asymmetric information problem, and who isfacing it (your firm or your consumers).b. Please explain how you solved this problem.arrow_forward
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