What is adverse selection? Give an example and explain why it is a problem
What will be an ideal response?
Adverse selection can occur when a buyer or seller enters into an exchange with another party who has more information. In the case of health insurance people who know they are sick are more inclined to seek coverage and to withhold their condition from the insurance company. If insurance companies could identify these individuals they would charge them higher premiums.
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What is the difference between the U.S. current account deficits of the 1980s and the 1990s?
What will be an ideal response?
Suppose the accompanying figure illustrates the demand curve facing a monopolist.
Suppose this firm maximizes its profits by charging a price of $8 per unit. This implies that the firm's:
A. marginal cost is less than $8. B. marginal cost is $0. C. average total cost is $8. D. marginal cost is $8.
Allocative efficiency is achieved when
A) firms produce the goods and services that consumers value most.
B) firms produce goods and services at the lowest cost.
C) there are no shortages or surpluses in the market.
D) goods and services are fairly distributed among consumers in an economy.
Deficit spending boosts aggregate demand.
Answer the following statement true (T) or false (F)