Principles of Microeconomics
7th Edition
ISBN: 9781305156050
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 22, Problem 3QR
To determine
Signaling and screening.
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Contrast the two types of com petitionthat marketers face
One method of solving this problem is through signaling. Signaling is a strategy one uses when they have information. The goal is to use a signal to convince the buyer that the good or service that is being sold is quality and will meet the buyer's wants.
Offer an example of a company that uses a signal to help sell its product. What is the signal?
What information is the signal trying to convey?
Do you think the signal is effective? Why or why not?
Does this signal improve market efficiency? Why or why not?
In the health insurance market, moral hazard occurs when
A.) chronically ill people refuse appropriate medical treatment.
B.) chronically ill people buy insurance.
C.) patients sue their doctor.
D.) chronically ill people cannot buy insurance.
E.) providers overtreat patients..
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Principles of Microeconomics
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- What are the disadvantages of payback screening analysis?arrow_forwardHow have conmunications changed over the past 30 years? For the better or worse?arrow_forwardA website offers a place for people to buy and sell emeralds, but information about emeralds can be quite imperfect. The website then enacts a rule that all sellers in the market must pay for two independent examinations of their emerald, which are available to the customer for inspection. How would you expect this improved information to affect demand for emeralds on this website? How would you expect this improved information to affect the quantity of high-quality emeralds sold on the website?arrow_forward
- How does moral hazard apply to seat belt laws and helmet laws?arrow_forwardGive at least five examples of hemogeneous products and their substitutearrow_forwardWould this be d? Dan, age 19, may have trouble buying auto insurance at a low price because insurance companies a)operate in markets in which screening is inefficient. b)fear that he has private information that his deductible is too high. c)have private information that his signals are valid. d)have private information that he is a risky driver. e)fear that he has private information that he is a risky driver.arrow_forward
- In the market for used cars, there are two types of cars: bad cars, or good cars. The sellers know the qualities of the cars, and they value bad cars at $100 and good cars at $1000. The buyers cannot observe the quality of the cars, and they are willing to pay $100 for a bad car, and $1000 for a good car. Assume that buyers can only offer the same buying price forany car in the market (i.e., buyers cannot discriminate among sellers). What is the equilibrium price in such a market for used cars? a) $550b) $100c) $1000d) Between $100 and $1000e) This is a case of adverse selection. The equilibrium price cannot be determined.arrow_forwardWhat is moral hazard?arrow_forwardHow should the government decide what the optimal level of deterrence isarrow_forward
- define and explain the importance of moral hazardarrow_forwardGeorge Akerloff focused the market for used cars and discussed an issue later generally called the "lemons problem." A "lemon" is a low quality used car, with the seller but not the potential buyer aware of this. Since sellers have more information about the quality of the car: a. adverse selection causes an inefficiently large number of transactions to occur. b. moral hazard causes an inefficiently large number of transactions to occur. c. moral hazard causes an inefficiently small number of transactions to occur. d. adverse selection causes an inefficiently small number of transactions to occur.arrow_forwardDiscuss and show how the social preferance of altruism can be a potential solution to the social dielemma of the covid vaccine rolloutarrow_forward
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