Expected utility theory predicts that individuals will fully insure in actuarily fair markets so long as their tastes are state-independent. How might adverse selection result in some individuals under-insuring?
What will be an ideal response?
Under adverse selection, a separating equilibrium will have the following feature: Low cost types will be offered a menu of insurance contracts that is actuarily fair but not complete -- i.e. full insurance will not be offered at rates that are actuarily fair for low cost consumers because this would draw high cost consumers into the market.
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Refer to Figure 9.8. If free trade in sugar is replaced by a $50 tariff in sugar, government revenue from the tariff will be
A) $50. B) $5000. C) $15,000. D) $17,500. E) $25,000.
If the minimum efficient scale in aluminum production exceeds the quantity of aluminum any individual aluminum siding producer buys,
a. siding producers should integrate backward into aluminum production b. there will be a monopoly in aluminum production c. siding producers should not integrate backward into aluminum production d. siding producers will be charged prices above what the cost of producing aluminum themselves would be e. siding companies will switch to vinyl
Identify the correct statement about repeated negotiations from the following
a. Patterns in repeated negotiations can persist over time but are usually region-specific. b. The payoff from repeated negotiations is higher than that from negotiations which are unlikely to be repeated. c. Experience can help the parties understand each other's positions when negotiations involve previously unencountered issues. d. The greater the experience of the buyer the higher the benefits he realizes from a repeated negotiation.
Suppose a central bank takes actions that will lead to a higher inflation rate. The public, however, is slow to adjust its expectation of inflation. Then, in the short run, unemployment
a. rises. As inflation expectations adjust, the short-run Phillips curve shifts right. b. rises. As inflation expectations adjust, the short-run Phillips curve shifts left. c. falls. As inflation expectations adjust, the short-run Phillips curve shifts right. d. falls. As inflation expectations adjust, the short-run Phillips curve shifts left.