Susan buys automobile insurance from Provident Insurance Company. If Susan avoids having an accident for three years, Provident will reduce the premiums she has to pay for her insurance. Nevertheless, she routinely drives while eating or texting and speeds up to try to make it through yellow lights
a. This is an adverse selection problem which should be corrected with government intervention.
b. Susan is a principal and Provident is an agent in this principal-agent problem.
c. This is a moral hazard problem.
d. There is no way for Provident to determine whether Susan is a cautious or risky driver.
c
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Suppose the demand for milk is relatively inelastic. What happens to sales revenue if the government imposes a price floor above the free-market equilibrium price in the market for milk?
A) Sales revenue remains unchanged. B) Sales revenue rises. C) Sales revenue falls. D) It cannot be determined without information on prices.
The public choice model raises questions about the government's ability to regulate economic activity efficiently. Which of the following statements represents the views of most economists with regard to the role of government?
A) U.S. citizens can afford more government regulation if the cost of this regulation is borne mostly by taxpayers with the highest incomes. B) Government should do more to regulate markets. The public choice model has shown that rent seeking and rational ignorance affect more markets than are currently subject to regulation. C) Agencies such as the Food and Drug Administration and the Environmental Protection Agency can serve a useful purpose, but we need to take the costs of regulation into account along with the benefits. D) Congress should abolish the Food and Drug Administration, the Environmental Protection Agency, and other agencies and commissions because the costs of their actions exceed the benefits they provide to the public.
Technological change is most likely to affect:
A. seasonal unemployment. B. cyclical unemployment. C. frictional unemployment. D. structural unemployment.
The foreign exchange rate describes the
A) balance of trade. B) balance of payments. C) law of comparative advantage. D) price of foreign currency in terms of domestic currency.