Econ Chapter 16

A ___________________ arrangement exists when medical care providers are paid according to the services they provide. A. fee-for-service B. service contract C. coinsurance D. insurance

A

A buyer confronted with _______________will often believe that the price being charged reveals something about the ____________ of the product. A. adverse selection; condition B. imperfect information; quality C. adverse information; condition D. imperfect selection; quality

B

Although they have never been charged with a DUI, Glen and Dale often drive while intoxicated and each made 3 claims for auto accidents in 2010. If Crown Insurance decides to raise the price of insurance coverage for all its policy holders to $3,000 per year to off-set the claims of this type of driver, then its attempt to counter A. the moral hazard problem will be satisfactorily addressed. B. adverse selection will cause the low-risk policy holders to cancel their policies. C. the moral hazard problem will cause the high-risk group to cancel their policies. D. the adverse selection will be satisfactorily addressed.

B

How many Americans are thought to be without health insurance because they either work for small companies or at low-paying jobs? A. 20 million B. 40 million C. 50 million D. 70 million

B

Most buyers face a situation of _____________________ when they invest in the stock market. A. adverse information B. imperfect information C. imperfect selection D. adverse selection

B

A ________________ exists when the buyer pays an extra amount and the seller agrees to fix anything that goes wrong for a set time period. A. warranty B. money-backed guarantee C. service contract D. money-back warranty

C

A ________________________ is a form of incentive to purchase a product on a 30 day trial basis. A. replacement guarantee B. warranty C. money-back guarantee D. service contract

C

Individuals who have a small amount deducted from their paychecks to contribute into a pooled fund used to pay benefits for a period of time if they are laid-off have contributed to A. a pension insurance fund. B. a deposit insurance fund. C. an unemployment insurance fund. D. a healthcare insurance fund.

C

Regardless of how many services are provided, a health maintenance organization provides health care and is paid ___________________ per person enrolled in the plan. A. within a range of variable amounts B. a variable amount C. a fixed amount D. on a sliding scale

C

A ______________ is a promise to fix or replace the good, at least for a certain period of time. A. service contract B. insurance policy C. money-back guarantee D. warranty

D

All but one of the following is a mechanism intended to provide reassurance against imperfect information. Which is it? A. certification of labor B. collateral C. reputation D. financial capital markets

D

One strategy insurance companies have adopted to reduce moral hazard is to require an injured party to pay a _______________ . A. actuarial fairness B. a contribution C. a premium D. a deductible

D

A ____________________ is a promise that the buyer's money will be refunded under certain conditions. A. money-back guarantee B. warranty C. service contract D. insurance policy

A

If U.S. auto manufacturers cut the prices of their vehicles to sell a greater quantity, buyers may assume that the lower price implies _____________ compared to foreign manufactured vehicles. A. a lower quality B. larger quantities were produced C. higher quality service contracts D. better warranties

A

If a website facilitates the sale of goods by individuals and businesses over the internet, but requires actual photos of every item for sale to be posted instead of a manufacturer's stock picture of the product, demand for that product will likely ___________ due to the improved information, causing quantity to ___________ . A. increase, increase B. decrease, increase C. increase, decrease D. decrease, decrease

A

If insurance premiums are going to be set below the actuarially fair level for a certain group, who will likely be targeted to make up the difference? A. government regulators and taxpayers B. insurance company shareholders C. other buyers of insurance D. taxpayers or other buyers of insurance

A

In the U.S., the law requires employers offering pension plans for their employees to pay a small fraction of those pension contributions to the _________________________, which will pay at least some pension benefits to workers if a company goes bankrupt and cannot pay the pensions it has promised. A. Pension Benefit Guarantee Corporation B. Government Pension Benefit Corporation C. Insured Pension Benefit Guarantee Corporation D. Guaranteed Retiree Pension Benefit Corporation

A

In the insurance industry, homeowners are referred to as ___________ who share roughly the same risks of an adverse event occurring. A. a risk group B. an adverse group C. an uninsurable group D. a premium group

A

In the labor market, a stipulation that the first three months of employment is a trial period is A. a standard precaution against hiring a lemon. B. a precondition to certification in labor. C. waived when school transcripts are submitted with a resume. D. a way of classifying potential employees.

A

Martha has decided to purchase a new home constructed by Crown Builders. In addition to Crown Builder's good reputation in the industry, which of the following likely influenced Martha's decision to purchase a new home? A. builder's no-charge service contract covering first year B. lower insurance premiums because of safety inspections C. money-back guarantee for the solar hot water system D. low-cost extended warranty on the air conditioner

A

The chef at a high-end French cuisine restaurant has accepted a job on a cruise liner. The restaurant owner must advertise for a replacement chef, but is concerned about reducing the amount of imperfect information respondents to the career ad will provide. This concern can best be addressed by A. requiring current resumes and recommendations. B. requiring a detailed job history. C. stipulate a three-month trial period as a hiring condition. D. offer to hire on a weekly renewable contract.

A

The major problems caused by imperfect information in insurance markets are A. moral hazard and adverse selection. B. deceptive applicants and fraudulent claims. C. ability to attract repeat customers and risk groups. D. major additional costs and separating insurance buyers

A

The presence of _____________________ in transactions involving goods can easily cause a ______________________ if the result is only a relatively small number of buyer and sellers communicating enough information so that they can agree on a price. A. imperfect information; thin market B. adverse information; decline in prices or quantities of products sold C. adverse selection; decline in prices or quality of purchased goods D. imperfect selection; thick market

A

The problem of ________________ in insurance markets is that insurance companies are unable to ______________ . A. adverse selection; differentiate those with low and high risks B. reducing moral hazards; sell insurance in unregulated markets C. adverse selection; find mechanisms to reduce moral hazards D. adverse selection; sell insurance in unregulated markets

A

_________________ in the insurance industry prevents premiums from being much higher than the___________ level in the long term. A. Competition; actuarially fair B. Greater government involvement; free-market profit C. Classifying groups by risk; legal requirement D. Government intervention; profit

A

_____________________ can lead to a situation where, even if sellers are faced with a situation of _______________, they will decide not to cut prices for awhile because they know that buyers in this situation will not react by purchasing a _______________ . A. Imperfect information; excess supply; higher quantity B. Adverse selection; reduced supply; lower quantity C. Adverse selection; excess supply; better quality D. Imperfect information; reduced supply; higher quality

A

_____________________ that are issued by government agencies are a form of validation that a worker has completed a certain type of education or passed a certain test. A. Occupational licenses B. Industrial licenses C. Service contract licenses D. Occupational insurance licenses

A

An insurance company is likely to believe that having a major accident is a signal of being a _____________, and thus try to _________________. A. moral hazard; deny this driver further coverage B. high-risk driver; raise this driver's insurance premiums C. high-risk driver; compel the driver to take defensive driving courses D. medium-risk driver; reduce the amount of this driver's coverage

B

Another person or firm who legally pledges to repay some or all of the money loaned if the original borrower fails to do so is called a __________________________ . A. warrantor B. cosigner C. guaranty D. codebtor

B

Credit Union members who insure their mortgage debt to off-set the risk of loss of life will all ___________________________, and a Credit Union whose insured member suffers this type of loss will ________________________. A. require eligibility certification from a state health authority; apply for benefits B. make regular premium payments; receive payment to retire that insured debt C. be in the same group of people; receive refund of insurance premiums D. be in a similar group of people; receive payment and a refund of premiums.

B

Government regulations allow a manufacturer of natural weight loss products to advertise A. using any amount of exaggerated claims because, in a free market, caveat emptor prevails. B. using a certain amount of exaggeration about the general delight of using those products. C. any benefits of using their products, even if those benefits are exaggerated. D. about factual benefits only, because exaggerations of any sort are strictly prohibited.

B

If a website facilitates the sale of goods by individuals and businesses over the internet, but requires actual photos of every item for sale to be posted instead of a manufacturer's stock picture of the product, both the demand and supply of products in good condition will shift due to the improved information, causing quantity to _________ and price to _______________. A. decrease, be indeterminate B. increase, be indeterminate C. increase, increase D. decrease, increase

B

Jeremy is an 18 year old college student with no prior credit history, who still lives at home. He will have a part-time job while he is attending college and has applied for a car loan. In these circumstances, the bank's loan officer will most likely approve the loan if Jeremy can A. sign over his parent's car as collateral. B. provide a cosigner on the loan. C. increase his student loan. D. maintain a "B" grade average.

B

One prominent U.S. study found that when people face ____________ for their health insurance, they consume about ________ medical care than people who have complete insurance. A. lower premiums and deductibles; one-quarter less B. moderate deductibles and copayments; one-third less C. higher premiums and deductibles; one-quarter more D. high deductibles and copayments; one-third more

B

Payments made to an insurance company in return for a policy of insurance are called _________________ . A. risk expenses B. premiums C. risk expenditures D. deductibles

B

State insurance regulators have sometimes reacted by passing rules that attempt to set low premiums for insurance. But over time, ___________________________ must hold: the average amount received by individuals must equal the average amount paid in premiums. A. the fundamental law of caveat emptor B. the fundamental law of insurance C. the fundamental principle of profitability D. the fundamental principle of actuarial fairness

B

State insurance regulators typically attempt to accomplish two things: _______________________and __________________________________ . A. ensure profitable economic transactions; regulate compulsory insurance B. keep the price of insurance low; make sure that everyone has insurance C. pass laws; ensure individuals cannot be compelled to purchase insurance D. enact a variety of laws; ensure individuals are required to buy insurance

B

What do service contracts, occupational licenses and cosigners all share in common? A. reduced risk of adverse selection B. reduced the risk of imperfect information C. eliminate the risk of adverse selection D. eliminate the risk of imperfect information

B

What name is given to an organization that receives a fixed amount per each person enrolled in a health care plan, regardless of how many services are provided? A. health members organization (HMO) B. health maintenance organizations (HMO) C. health care organization (HCO) D. non-government health organization (NGO)

B

Why would a bank require a borrower to have collateral or a cosigner before agreeing to lend funds? A. discourages some borrowers from asking for a loan B. reduces risk associated with imperfect information C. both act like a service contract in the goods market D. complicates the process to discourage risking borrowers

B

___________ requires an insurance policyholder to pay a percentage of a loss, and the insurance company pays the remaining cost. A. Insurance B. Coinsurance C. An insurance policy D. Government regulation

B

_____________________ cannot be eliminated, but it can often be managed. A. Imperfect selection B. Imperfect information C. Adverse selection D. Adverse information

B

_____________________ have incentives to create mechanisms that will allow them to make mutually beneficial transactions even in the face of _____________________. A. Manufacturers; adverse selection B. Buyers and sellers; imperfect information C. Retailers; adverse selection D. Retailers; imperfect information

B

Automobile manufacturers use warranties as incentives for buyers to purchase their products. Why are warranties on vehicles important to buyers? A. manufacturers pay insurance policy premiums on the buyer's vehicle for a set period of time B. for a fixed time period, buyer's can return vehicles for a full refund of the purchase price C. for a specific time period, the manufacturer bears the cost of fixing or replacing the vehicle D. manufacturers bear the cost of fixing the vehicles under unlimited-term service contracts

C

Banks are required by law to pay a small fraction of their deposits to the _______________, which goes into a __________ fund that is used to repay depositors their money if the bank should go bankrupt. A. Federal Reserve Deposit Insurance Fund; deposit insurance B. U.S. Deposit Insurance Fund; pooled C. Federal Deposit Insurance Corporation; deposit insurance D. Federal Bank Deposit Insurance Fund; pooled

C

If a website facilitates the sale of goods by individuals and businesses over the internet, but requires actual photos of every item for sale to be posted instead of a manufacturer's stock picture of the product, both the demand and supply of products in good condition will shift due to the improved information. If supply shifts by more than demand, quantity will _____________ and price will _____________. A. decrease, be indeterminate B. increase, be indeterminate C. increase, decrease D. decrease, increase

C

If a website facilitates the sale of goods by individuals and businesses over the internet, but requires actual photos of every item for sale to be posted instead of a manufacturer's stock picture of the product, the supply of products in good condition will likely __________ due to the improved information, causing price to __________ . A. increase, increase B. decrease, increase C. increase, decrease D. decrease, decrease

C

In the U.S., individuals often pay a small portion of their earnings into a state _________________ pooled fund that will compensate them if they are injured on the job. A. medicare B. social Security C. workman's compensation insurance D. unemployment insurance

C

In the case of insurance, _______________ arises because the buyers of insurance have more information about _____________________than the insurance company does. A. moral hazard; their risk rating B. actuarial prices; their high-risk or low-risk status C. adverse selection; the risk group they belong to D. fundamental laws; actuarial fairness

C

The government rules on advertising are enforced by the ________________________. A. Federal Advertising Commission B. Federal Broadcasting Commission C. Federal Trade Commission D. Federal Products Commission

C

The problem of _________________ arises when an antique dealer knows more about the quality of an item than the potential buyer, and as a result the buyer with less knowledge must worry about ending up at a ________________. A. imperfect selection; lemon B. adverse information; lemon C. adverse selection; disadvantage D. imperfect information; disadvantage

C

When Morty leased his new car, he was required by law to _________ to ______________ of financial loss caused by a vehicle collision. A. pledge collateral; reduce the chance B. pay extra for a warranty; eliminate the risk C. purchase insurance; reduce the risk D. receive a free service contract; eliminate any chance

C

When buyers use ___________________ to draw inferences about the quality of products, then markets may have trouble reaching _________________ and quantity. A. adverse selection; an equilibrium price B. imperfect information; a market price C. the market price; an equilibrium price D. imperfect selection; a market price

C

When people have insurance against a certain event, the notion that those people are less likely to guard against that event occurring is called a _____________________ . A. risk B. hazard risk C. moral hazard D. moral risk

C

Which of the following sets the United States apart from every other high-income country in the world? A. health care insurance is paid for from income tax revenues and provided by a public institution B. most homeowners insurance is paid for by an individual and is provided by for-profit private firms C. most health insurance is paid for by an individual and is provided by for-profit private firms D. automobile insurance premiums are paid to and benefits are provided by a public institution

C

Which of the following would be the most beneficial to an internet retailer? A. reputation for high-priced, quality products B. reputation for quality and free shipping C. money-back guarantee combined with a reputation for quality D. warranty against product defects and a reputation for low prices

C

____________________________ often have deductibles, which is an amount that the insurance policyholders must pay out of their own pocket ____________________ . A. Pension insurance plans; before the insurance coverage kicks in B. Workman's Compensation; before they are eligible for coverage C. Insurance companies; before the insurer pays its portion of the claim D. Retirement insurance policies; according to government laws

C

An insurance policyholder must pay a _______________ for each ______________ service, before insurance covers the rest. A. copayment; uninsured B. deductible; uninsured C. deductible premium; insured D. copayment; insured

D

Changes in weather patterns are increasing administrative costs for insurance companies. These added costs often exceed the amount of the premiums coming in and claim payments going out. To address this problem, insurance companies typically A. increase dividend payments to shareholders. B. deny weather related claims for property damage. C. increase their investment income. D. build up the amount of their reserves.

D

Guarantees, warranties, and service contracts are all examples of A. how seller's provide information to would-be buyers. B. forms of reassurance used in the labor market. C. how seller's are able to charge high prices. D. forms of explicit reassurance provided by sellers.

D

How do insurance companies reduce the risk of moral hazard? A. deny claims with high damages B. only allow claims with low damages C. investigation and monitoring D. classifying people based on credit history

D

If a website facilitates the sale of goods by individuals and businesses over the internet, but requires actual photos of every item for sale to be posted instead of a manufacturer's stock picture of the product, demand and supply of products in good condition will shift due to the improved information. If the quantity demanded shifts by more than supply, quantity will likely ___________ and price will likely ___________. A. decrease, increase B. decrease, be indeterminate C. increase, be indeterminate D. increase, increase

D

If buyers become reluctant to purchase high-quality goods because they can't be confident of purchasing a high-quality product, then A. a large number of buyers will communicate the need for lower prices. B. a large number of sellers will communicate their intention to raise prices. C. a large number of buyers and sellers will be willing to barter to agree on price. D. the equilibrium price and quantity will be adversely affected by a thin market.

D

Of 1000 homeowners insured with Crown Insurance, 250 live in a flood plain, 150 live in an area with frequent tornadoes, 100 live in earthquake prone regions, and the remaining 500 reside in small communities located in less hazardous regions. Which of the following will likely apply to the low-risk group of homeowners? A. the low and medium-risk groups will pay less than the high-risk group B. those in the low-risk group will pay less than both the medium-risk and high-risk group C. those in the low-risk group will be discouraged from buying home insurance. D. they must buy insurance and pay more than the actuarially fair amount for their risk group

D

Ryan lives in Iowa and is completing his fourth year of electrician apprenticeship training. After achieving journeyman status, what will Ryan require from his state government in order to practice his trade? A. group health insurance B. occupational insurance C. service contract D. occupational license

D

What do an optician and a lawyer share in common? A. government regulators require that each must guarantee their services B. each must warranty their services C. each must provide a money-back guarantee D. need for a valid occupational license from government regulators

D

When the level of insurance premiums that someone pays is equal to the amount that an average person in that risk group would collect in insurance payments, the level of insurance A. will be adverse to profits. B. will be actuarially sound. C. complies with fundamental law. D. reaches actuarial fairness.

D

Why has there been a shift away from the traditional fee-for-service structure in the U.S. health care? A. to address the adverse selection problem associated with the medical profession B. prevents insurance companies from raising medical professional insurance premiums C. reduces moral hazard by limiting the quality of care provided. D. reduces incentives and moral hazards of added services to increase income

D

With regard to the provision of health insurance in the United States, which of the following is regarded as a way of addressing moral hazard and adverse selection problems? A. reducing profit margins for insurance companies B. increasing profit margins for insurance companies C. reduced government involvement D. greater government involvement

D

__________ is something valuable that a lender would have a right to________________ if the loan is not repaid. A. Collateral; sue for B. A guarantee; seize and retain C. A guarantee; sell D. Collateral; seize and sell

D