Explain the following statement: "In health insurance markets, moral hazard implies individuals will consume too much health care, whereas adverse selection implies too little health care will be consumed."
What will be an ideal response?
Moral hazard implies that those who are insured no longer face the marginal cost of medical procedures -- and, as a result, will consume beyond the point where marginal cost is equal to marginal benefit. Adverse selection implies that some individuals will have no insurance -- healthy individuals who choose not to pay the pooling equilibrium price, and lower income individuals who cannot afford to pay the price that will be high given that healthy individuals opt out. The uninsured would then consume too little medical care relative to the efficient amount.
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When the price level in France increases while the exchange rate and the price level in the United States remain the same, the result is
A) U.S.-made goods become relatively cheaper compared to French-made goods. B) French citizens are more likely to buy U.S.-made goods. C) U.S. citizens are less likely to buy French-made goods. D) All of the above answers are correct.
Provide an example of each allocation method that illustrates when it works badly
What will be an ideal response?
Refer to Figure 21-6. The market is in equilibrium. If the government budget deficit rises, which of the following would you expect to see?
A) The quantity of loanable funds demanded by firms will fall below $120 million. B) The interest rate will fall below 4 percent. C) The quantity of loanable funds demanded by firms will rise above $120 million. D) The budget deficit will have no impact on the quantity of loanable funds demanded by firms.
When marginal cost is increasing, average total cost must be increasing
a. True b. False Indicate whether the statement is true or false