What is adverse selection? Give an example to illustrate this problem.
What will be an ideal response?
Adverse selection refers to the tendency of an individual with private information about something that affects a potential trading partner's costs or benefits to extend an offer that would be detrimental to the trading partner. This is reflected in the market for health insurance. Since health insurance companies do not know the health of their customers, they have to sell insurance policies that exceed the expected expenditures of the buyers.
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In a Bertrand model of oligopoly:
A. firms produce differentiated products and set their prices simultaneously. B. firms produce homogenous products and set their prices simultaneously. C. firms choose how much to produce simultaneously and the price clears the market given the total quantity produced. D. firms choose how much to produce and the price to charge simultaneously.
Under the new discount window system, the interest rate for primary credit loans is set
A) one percentage point below the federal funds rate target. B) one percentage point above the federal funds rate target. C) two percentage points above the federal funds rate target. D) two percentage points below the federal funds rate target.
Which of the following does not correctly characterize modern economic growth?
A. It spread slowly across the globe, with some societies not having experienced it yet B. It has occurred only in the last 200 or so years C. It drastically alters the culture and politics of society D. It has not affected the average lifespan of human beings
What is the order in which an economy tries to solve the issue of resource allocation?
A. Production planning, distribution, and output selection B. Output selection, production planning, and distribution C. Production planning, output selection, and distribution D. Distribution, production planning, and output selection