Answer the following questions true (T) or false (F)
1. If a state requires all drivers to buy auto insurance, the problem of adverse selection is eliminated.
2. Adverse selection is a situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction.
3. A doctor pursuing his own interests rather than the interests of his patients is an example of the principal-agent problem.
1. TRUE
2. TRUE
3. TRUE
You might also like to view...
Which theory explains all three facts about the term structure?
A) expectations B) segmented markets C) preferential treatment D) liquidity premium
Which of the following statements concerning the distinction between positive and normative economics is TRUE?
A) Positive statements are concerned with what is, while normative statements are concerned with what someone thinks should be. B) Positive statements are concerned with what people think, while normative statements are concerned with what people do. C) Positive statements are true while normative statements are false. D) Positive statements are concerned with what is while normative statements are concerned with what will be.
The price of pizza falls relative to the price of spaghetti, so people buy more pizza instead of spaghetti. This is an example of responding to:
A. marginal science. B. incentives. C. disincentives. D. sunk benefit.
The real interest rate is defined as the:
a. fixed rate on consumer loans. b. nominal interest rate minus the inflation rate. c. actual interest rate. d. expected interest rate minus the inflation rate.