Homework: Chapters 12 and 19 Homework
Which of the following are examples of nonrenewable natural resources? A. Natural gas and water. B. Sunlight and coal. C. Wood and water. D. Coal and oil.
Coal and oil.
Signaling occurs when _____ person takes an action that _____ persons. A. an uninformed; sends information to informed B. an informed; sends information to uninformed C. an informed; imposes costs on uninformed D. a productive; increases productivities of other
an informed; sends information to uninformed
Are out-of-pocket medical costs too high? Health insurance premiums have increased and been accompanied by higher deductibles, which means that out-of-pocket costs have increased. Some say higher out-of-pocket costs lower prices and send buyers to efficient healthcare providers. Others say higher out-of-pocket costs puts quality healthcare out of reach for those with lower incomes. Source: The Wall Street Journal, April 10, 2016 How do larger deductibles and larger out-of-pocket costs influence adverse selection and moral hazard in the health insurance market? Larger deductibles and larger out-of-pocket costs _______ adverse selection because _______. A. increase; people have an incentive to take more risks when they are insured B. decrease; healthier people choose to buy insurance with lower premiums and large deductibles C. do not change; people need health insurance regardless of the size of the deductible D. increase; poor people who tend to be less healthy buy insurance with lower premiums and large deductibles E. decrease; wealthy people buy insurance regardless of the size of the deductible
decrease; healthier people choose to buy insurance with lower premiums and large deductibles
As more people buy Internet service, the ______ Internet service increases and the price of Internet service ______. A. the demand for; falls B. the supply of; rises C. the demand for; rises D. the supply of; falls
the demand for; rises
The rise in the price of grain ______ the demand for farmland and ______ the rental rate of farmland. A. decreases; raises B. decreases; lowers C. increases; lowers D. increases; raises
increases; raises
The market for Nick Saban, the University of Alabama football coach, ______ competitive because ______. A. is; many teams want to hire him B. is not; other schools think that he will not leave the University of Alabama C. is not; he is a unique resource D. is; he is highly accessible to the media
is; many teams want to hire him
In the market for used cars with no warranties, ______ lemons are bought and the equilibrium is a ______ equilibrium. A. too few; separating B. no; pooling C. too many; separating D. only; pooling
only; pooling
VW exec knows of no talks to unionize Tennessee plant Volkswagen opened the $1 billion plant in Chattanooga in May and hired its 2,000th employee there in July. The hourly wage starts at $14.50 per hour, which is very competitive, and has great benefits. Source: The Wall Street Journal, August 1, 2011 If this plant's workers join the union, explain how the wage rate will change. If the union can increase the value of marginal product of a worker, the wage rate will ______. If the union tries to increase the wage rate without an increase in the value of marginal product, the number of workers employed will ______. A. fall because the supply of workers increases; increase B. rise; decrease C. fall because the demand for workers decreases; increase D. fall because the supply of workers increases; decrease E. rise; increase
rise; decrease
This change in the price of Internet service will lead to a ______ in the wage rate paid to Web page designers because ______. A. fall; the demand for Web page designers increases as more people surf the Web B. rise; the demand for Web page designers increases as more people surf the Web C. rise; the supply of Web page designers increases D. fall; the supply of Web page designers increases
rise; the demand for Web page designers increases as more people surf the Web
If a labor union successfully restricts the supply of labor to firms, and if the union is not able to influence the demand for labor, then the wage rate _______ and employment _______. A. falls; might increase, decrease, or remain constant B. rises; decreases C. rises; remains constant D. falls; increases
rises; decreases
Private information is information relevant to a transaction that is possessed by _____ market participants _____. Asymmetric information is a situation in which either the _____ has private information. A. some; but not all; buyer or the seller B. some; but not all; the government or the seller C. all; and the government; buyer or the government D. all; and the government; either the buyer or the seller
some; but not all; buyer or the seller
Screening occurs when an _____ person creates an incentive for an _____ person _____ reveal private information. A. uninformed; informed; to B. uninformed; informed; not to C. informed; uninformed; not to D. informed; uninformed; to
uninformed; informed; to
In Florida groves, machines replace labor In one hour, two canopy shakers loosen 144,000 pounds of oranges from 100 trees and catch the fruit in a large storage car. It would take four pickers four (eight-hour) days to pick 144,000 pounds of oranges. The driver of a canopy shaker earns $15 an hour, while a picker earns $10 an hour. The grove owner receives $1 a pound of oranges. Source: The New York Times, March 22, 2004 Calculate the marginal product of a picker and the marginal product of the driver of a canopy shaker. The average product of a picker is nothing pounds per hour. The average product of labor equals total product divided by the quantity of labor employed. It takes four pickers 32 hours to pick 144,000 pounds of oranges. So it takes a total of 128 hours to pick 144,000 pounds. The average product of labor of a picker is 144,000 pounds divided by ÷128 hours, which is 1,125 pounds per hour. The average product of the driver of a canopy shaker is nothing pounds per hour.
1125 72000
The owner of a TexasTexas car washcar wash is maximizing profit. The price of a washwash is $4.00, a car washcar wash worker's wage rate is $8 an hour, and the car washcar wash employs sixsix workers. What is the marginal product of the sixthsixth car washcar wash worker? If, when the price of a washwash rises to $5.00, the car washcar wash hires eighteight workers, what is the marginal product of the eightheighth worker? >>> Answer to 2 decimal places. When the price of a washwash is $4.00, the marginal product of the sixthsixth car washcar wash worker is nothing ▼ washes per hour dollars . When the price of a washwash rises to $5.00, the marginal product of the eightheighth car washcar wash worker is nothing ▼ washes per hour dollars .
2 washes per hour 1.6 washes per hour
Emperor Spring RollsEmperor Spring Rolls produces spring rollsspring rolls. The market for spring rollsspring rolls is perfectly competitive, and the price is $4.00 a spring rollspring roll. The labor market is competitive, and the wage rate is $80.00 a day. The table shows part of the workers' total product schedule. Calculate the marginal product of hiring the fourthfourth worker and the value of the marginal product of the fourthfourth worker. The marginal product of hiring the fourthfourth worker is nothing spring rollsspring rolls a day. The value of the marginal product of the fourthfourth worker is $ nothing a day.
20 80.00
Taco KingTaco King produces tacostacos. The market for tacostacos is perfectly competitive, and the price is $4.004.00 a tacotaco. The labor market is competitive, and the wage rate is $40.0040.00 a day. The table shows part of the workers' total product schedule. How many workers will Taco KingTaco King hire to maximize its profit? How many tacostacos a day will it produce? Taco KingTaco King will hire nothing workers to maximize profit. Taco KingTaco King produces nothing tacostacos a day to maximize profit.
4 42
The league that best addresses these problems is the _______. A. Bonus for Win League because players have an incentive to play hard so they can earn the bonus for winning B. Time League because by paying players for time spent practicing, the players will develop better skills and play more exciting games
Bonus for Win League because players have an incentive to play hard so they can earn the bonus for winning
Helen owns a lawn care firm, and she hires students to mow lawns. She pays each student a fixed hourly wage rate. David also owns a lawn care firm, that hires students to mow lawns. David pays the students for each lawn mowed. Adverse selection tells us that _______. A. Helen attracts lazy students and David attracts hard-working students B. in the long run, Helen and David will use the same compensation method C. David's compensation agreement adversely selects those with private information D. employers cannot benefit from private information
Helen attracts lazy students and David attracts hard-working students
Which of the following is an example of derived demand? A. The Co-op faces an increased demand for organic fruits. B. There is a sudden surge in the demand for real estate. C. Most firms earn a normal profit in the long run. D. Jim produces 20 jackets a day in his garment factory and hires labor used to produce that profit maximizing quantity.
Jim produces 20 jackets a day in his garment factory and hires labor used to produce that profit maximizing quantity.
Which of the following illustrates moral hazard? A. Rich is paying 9 percent annual interest on his loan. B. Ned bought an LG smartphone with a three-year contract. C. All high-rises have installed fire alarms and sprinklers. D. Nick, who recently bought auto insurance, is not a careful driver.
Nick, who recently bought auto insurance, is not a careful driver.
A situation of asymmetric information occurs when _______. A. in anticipation of higher prices at Cinco de Mayo, limes flood the market B. advances in technology lower the prices of electronics C. Sue sells her house during the winter, knowing that during the spring her basement leaks D. airfares remain constant despite lower fuel costs
Sue sells her house during the winter, knowing that during the spring her basement leaks
Which of the following is an example of adverse selection? A. Rachel gets used books from Amazon as she finds it most reliable. B. Ned gets his groceries from a store that sells cheaper products. C. Randy wants to work for an advertising agency. D. Ted, a lazy young boy, got hired as a sales person in a small-scale business enterprise on a fixed-wage contract.
Ted, a lazy young boy, got hired as a sales person in a small-scale business enterprise on a fixed-wage contract.
Choosing the right college Connie Pollack, a college admissions consultant, says that the challenge for the student is to find the college that pushes the right academic, financial, and social buttons to deliver four happy years without having to make a new choice after the first year. Source: Pittsburgh Post-Gazette, February 12, 2016 Do the applicants or the colleges have private information? Give an example of such private information. Does this market have an adverse selection problem? Do the applicants or the colleges have private information? A. The colleges have private information about the quality of life on campus. The applicants have no private information because the colleges have access to SAT scores and high school transcripts. B. Some applicants and some colleges have private information. C. The colleges have no private information because they disclose all information on their websites. The applicants have no private information because the colleges have access to their SAT scores and high school transcripts. D. The applicants have private information about their work habits and social skills. The colleges have private information about the quality of life on campus. E. The applicants have private information about their works habits and social skills. The colleges have no private information because they disclose all information on their websites.
The applicants have private information about their work habits and social skills. The colleges have private information about the quality of life on campus.
Adverse selection exists in the ______. A. Bonus for Win League because lazy players want to play on teams with good players, and the Bonus for Win League encourages good players B. Bonus for Win League because lazy players will be satisfied to lose games C. Time League because lazy players will want to play in this league D. Time League because good players enjoy practising
Time League because lazy players will want to play in this league
Suppose that there are two national football leagues: The Time League and The Bonus for Win League. The players have private information about their effort. In The Time League, players receive a fixed wage based on the time they spend practicing and playing matches. In The Bonus for Win League, the players are paid one wage for a loss, a higher wage for a tie, and the highest wage of all for a win. Moral hazard exists in the _______. A. Bonus for Win League because players have an incentive to play hard B. Time League because lazy players will want to play in this league C. Time League because players have no incentive to play hard or to win the game D. Bonus for Win League because hard-working players will prefer this league to the Time League
Time League because players have no incentive to play hard or to win the game
Choose the correct statement about unions. A. Unions support import restrictions to increase the demand for the goods and services produced by unionized workers. B. Unions do not support minimum wage laws. C. Union workers on average earn twice as much as non-union workers. D. Unions would like to increase the value of marginal product of their workers, but this is generally an impossible task.
Unions support import restrictions to increase the demand for the goods and services produced by unionized workers.
In a used-car market in which dealers offer cars with warranties, _______. A. there is private information B. a lemons problem does not arise C. a separating equilibrium does not occur D. the market is inefficient
a lemons problem does not arise
Signaling occurs when _____ person takes an action that _____ persons. A. an informed; imposes costs on uninformed B. a productive; increases productivities of other C. an informed; sends information to uninformed D. an uninformed; sends information to informed
an informed; sends information to uninformed
Mary is an 18-year-old student, who recently bought a used car. Mary is looking to buy car insurance. Insurance companies compete for her business. Is there an adverse selection problem in a transaction between Mary and an insurance company? Explain why or why not. Adverse selection _______. A. arises because Mary will drive in a careless manner as soon as she has auto insurance B. arises because Mary knows if she is a safe or a risky driver and the insurance company does not know this C. does not arise because insurance companies assume that all young drivers are reckless D. is eliminated by auto-insurance companies insuring as many young drivers as possible E. does not arise because auto-insurance companies know that 18-year-old girls are better risks than 18-year-old boys
arises because Mary knows if she is a safe or a risky driver and the insurance company does not know this
It is in a used-car dealer's self-interest to offer a warranty because _______. A. buyers believe the signal given by a warranty and are willing to pay a higher price for used cars with warranties B. a warranty increases the demand for good used cars C. all other used-car dealers provide warranties D. a warranty in the self-interest is also in the social interest, so the market for used cars is efficient and total surplus is maximized
buyers believe the signal given by a warranty and are willing to pay a higher price for used cars with warranties
It is in a used-car dealer's self-interest to offer a warranty because _______. A. buyers believe the signal given by a warranty and are willing to pay a higher price for used cars with warranties B. all other used-car dealers provide warranties C. a warranty in the self-interest is also in the social interest, so the market for used cars is efficient and total surplus is maximized D. a warranty increases the demand for good used cars
buyers believe the signal given by a warranty and are willing to pay a higher price for used cars with warranties
Moral hazard arises in the insurance market because _______. A. insurance companies can offer a range of premiums to buyers B. insurance companies can match premiums to customer risk C. buyers can opt to take a deductible or a no-claim bonus D. buyers of insurance have private information that they can use
buyers of insurance have private information that they can use
25 million new jobs coming to America, thanks to technology Oxford researchers say that half of the jobs in America will be computerized over the next 20 years. Robert Cohen, a senior fellow at the Economic Strategy Institute, says "cloud computing, Big Data, and the Internet of Things will employ millions of people in new types of jobs.". Source: Fortune, January 15, 2016 Explain how advances in computer technology destroy and create jobs. Advances in computer technology destroy jobs because _______. A. computers are a substitute for some types of labor B. the supply of labor decreases as workers move to other sectors C. computers are a complement for most types of labor D. the resulting increase in the VMP of some types of labor raises wage rates above the profit-maximizing level
computers are a substitute for some types of labor
New technologies ______. A. decrease the demand for some types of labor and increase the demand for other types B. increase the demand for all types of labor because production increases and economic profit increases C. increase the value of marginal product for all types of labor D. decrease the demand for all types of labor because production becomes more capital intensive
decrease the demand for some types of labor and increase the demand for other types
Are out-of-pocket medical costs too high? Health insurance premiums have increased and been accompanied by higher deductibles, which means that out-of-pocket costs have increased. Some say higher out-of-pocket costs lower prices and send buyers to efficient healthcare providers. Others say higher out-of-pocket costs puts quality healthcare out of reach for those with lower incomes. Source: The Wall Street Journal, April 10, 2016 How do larger deductibles and larger out-of-pocket costs influence adverse selection and moral hazard in the health insurance market? Larger deductibles and larger out-of-pocket costs _______ adverse selection because _______. A. decrease; healthier people choose to buy insurance with lower premiums and large deductibles B. increase; people have an incentive to take more risks when they are insured C. increase; poor people who tend to be less healthy buy insurance with lower premiums and large deductibles D. decrease; wealthy people buy insurance regardless of the size of the deductible E. do not change; people need health insurance regardless of the size of the deductible
decrease; healthier people choose to buy insurance with lower premiums and large deductibles
Larger deductibles and larger out-of-pocket costs _______ moral hazard because _______. A. decrease; people have an incentive to adopt a healthy lifestyle B. increase; people who can afford large deductibles will wait to have major surgery until after they have private insurance C. increase; people who think health insurance companies make too much money through large deductibles have no incentive to adopt a healthy lifestyle D. decrease; the majority of voters support Obamacare and larger deductibles and want to make it work E. do not change; it takes more than a large deductible to change a person's lifestyle
decrease; people have an incentive to adopt a healthy lifestyle
The ______ low-skilled labor ______ and the wage rate fell. A. supply of; decreased B. demand for; disappeared C. supply of; increased D. demand for; decreased
demand for; decreased
The ______ medical workers ______ because the value of marginal product of medical services increases as the baby boom generation begins to retire. A. supply of; increases B. demand for; increases C. supply; decreases D. demand for; decreases E. demand for and supply of; do not change
demand for; increases
Stalling complaints about fixed GM cars In 2014, GM recalled 2.6 million vehicles to repair a safety defect in their ignition switches. Some of the recalled vehicles stalled and locked up, but a concerned GM said the problem with the recalled part did not appear to be the source of the problem. Source: NBC News, January 17, 2016 Did GM sell some lemons? If GM did, what was the private information that it had that buyers did not know? If GM didn't sell lemons, explain why not. GM ______ sell lemons to the buyers of the recalled vehicles because ______. A. did not; GM did not use a separating equilibrium, which it would have done if it knew the vehicles were defective B. did not; GM was unaware of the defect and used a pooling equilibrium C. did not; GM did not have any private information about the faulty ignition switches prior to the sales D. did; GM didn't reveal its private information about the faulty ignition switches until after the sales E. did; GM used a pooling equilibrium so that buyers were unaware of the defect
did not; GM did not have any private information about the faulty ignition switches prior to the sales
President Obama campaigned on a healthcare reform plan that did not include mandatory health insurance. Hillary Clinton wanted mandatory health insurance with no opting out. In 2009, the President said he would support making health insurance mandatory with the cost covered by employers, but those who could not afford to pay and small businesses would be exempt. U.S. healthcare per person costs twice that of other rich countries. Does the United States overprovide? Do other countries underprovide? What economic concepts do you need to answer? What data might be relevant? To determine overprovision or underprovision, we use the economic concept of _______ by finding data on _______. A. efficiency; the number of healthcare providers per person and the number of hospitals per person B. efficiency; the marginal social cost of providing healthcare and the marginal social benefit from providing healthcare C. total cost; the relative cost of healthcare D. total expenditure; total expenditure on healthcare E. total expenditure; total expenditure per person on healthcare
efficiency; the marginal social cost of providing healthcare and the marginal social benefit from providing healthcare
In a used car market that uses warranties, the outcome is _______. A. efficient because the price of a lemon is less than the price of a good car B. inefficient because of private information C. efficient because there are different markets for good cars and for lemons, and in each market marginal cost of each quality of car equals marginal benefit D. efficient because all lemons are repaired so that they become good cars with warranties E. inefficient because there are different markets for good cars and for lemons but the marginal cost of a good car is greater than the marginal cost of a lemon
efficient because there are different markets for good cars and for lemons, and in each market marginal cost of each quality of car equals marginal benefit
Adverse selection in the market for used cars _______. A. eliminates the need for government intervention in the market B. gives owners of good used cars little incentive to offer their cars for sale C. gives private information to buyers of used cars D. places a higher value on lemons than on good used cars
gives owners of good used cars little incentive to offer their cars for sale
A warranty signals that a car isn't a lemon because _______. A. giving warranties on lemons results in dealers bearing a high cost of repair B. a warranty creates asymmetric information C. "lemon laws" require dealers to honor warranties D. private sellers, who sell only lemons do not have warranties
giving warranties on lemons results in dealers bearing a high cost of repair
A warranty signals that a car isn't a lemon because _______. A. "lemon laws" require dealers to honor warranties B. a warranty creates asymmetric information C. giving warranties on lemons results in dealers bearing a high cost of repair D. private sellers, who sell only lemons do not have warranties
giving warranties on lemons results in dealers bearing a high cost of repair
Are out-of-pocket medical costs too high? Health insurance premiums have increased and been accompanied by higher deductibles, which means that out-of-pocket costs have increased. Some say higher out-of-pocket costs lower prices and send buyers to efficient healthcare providers. Others say higher out-of-pocket costs puts quality healthcare out of reach for those with lower incomes. Source: The Wall Street Journal, April 10, 2016 How do larger deductibles and larger out-of-pocket costs change the incentives that people face in the market for health insurance? Larger deductibles and larger-out-of-pocket costs strengthen the incentives for ______. A. greater efficiency in emergency rooms B. people with unhealthy diets to continue their poor lifestyle choices C. people who do not exercise to continue their sedentary lifestyle D. healthy families to buy healthcare insurance E. people to visit doctor's offices for minor health ailments
healthy families to buy healthcare insurance
President Obama campaigned on a healthcare reform plan that did not include mandatory health insurance. Hillary Clinton wanted mandatory health insurance with no opting out. In 2009, the President said he would support making health insurance mandatory with the cost covered by employers, but those who could not afford to pay and small businesses would be exempt. If health insurance is optional, would healthy people be more likely or less likely to buy insurance? If health insurance is optional, ______. A. healthy people are likely to buy insurance because healthy people tend to be the wealthiest people in the United States B. the efficient number of healthy and unhealthy people will buy it C. neither healthy or unhealthy people will buy it D. healthy people are not likely to buy insurance because they believe the chance of needing the insurance is not worth the price they must pay E. unhealthy people are not likely to buy insurance because most unhealthy people cannot afford the premiums
healthy people are not likely to buy insurance because they believe the chance of needing the insurance is not worth the price they must pay
Saban's compensation is determined by _______. A. his high VMP and a large supply of equally talented coaches B. the winning record of the Alabama Crimson Tide C. his high VMP and a small supply of equally talented coaches D. a strong coaches' union that restricts supply and increases VMP
his high VMP and a small supply of equally talented coaches
In Florida groves, machines replace labor In one hour, two canopy shakers loosen 144,000 pounds of oranges from 100 trees and catch the fruit in a large storage car. It would take four pickers four (eight-hour) days to pick 144,000 pounds of oranges. The driver of a canopy shaker earns $15 an hour, while a picker earns $10 an hour. The grove owner receives $1 a pound of oranges. Source: The New York Times, March 22, 2004 Explain why canopy shakers are replacing hand pickers. Canopy shakers are replacing hand pickers because ______. A. the supply of canopy shakers is greater than the supply of hand pickers B. canopy shakers are produced in the United States and it is important to support U.S. production C. orange groves are encouraged by the government to use automated methods and hire fewer migrant workers D. the supply of hand pickers is greater than the supply of canopy shakers E. if the rental rate of a canopy-shaking machine is less than $625 an hour, it costs less to pick 144,000 pounds of oranges with canopy shakers than with hand pickers
if the rental rate of a canopy-shaking machine is less than $625 an hour, it costs less to pick 144,000 pounds of oranges with canopy shakers than with hand pickers
A labor union is an organized group of workers that aims to _____ and influence other job conditions of its members. A. maximize profits B. increase wages C. increase imports D. lower labor costs
increase wages
Farmland rents soften with grain prices, but still high Millions of acres of U.S. farmland that grow corn, soybean, and wheat are rented, and land rent is the biggest cost of growing these crops. With rising crop prices, rents doubled during the past six year. Today, with falling crop prices, rents are falling, but they are still high. Source: Reuters, December 23, 2014 Explain how the price of grain affects the rent in the market for farmland. As the price of grain rises, the value of marginal product of farmland ______. A. sometimes increases and sometimes decreases B. increases C. does not change D. decreases
increases
An increase in the adult population ______. An increase in college enrollment ______. A. increases the supply of low-skilled labor; increases the demand for labor B. increases the supply of labor and the demand for labor; increases the supply of labor and the demand for labor C. increases the demand for labor; increases the supply of low-skilled labor and later it increases the supply of high-skilled labor D. increases the supply of labor; decreases the supply of low-skilled labor and later it increases the supply of high-skilled labor
increases the supply of labor; decreases the supply of low-skilled labor and later it increases the supply of high-skilled labor
Medicare and Medicaid address the problem of ______. They contribute to the problem of ______. A. overspending on private health insurance; rising out-of-pocket payments B. underestimation of future needs; rising external benefits from healthcare insurance C. asymmetric information; rising external benefits from healthcare insurance D. asymmetric information; rising out-of-pocket payments E. inequality in the ability to pay; increased healthcare costs
inequality in the ability to pay; increased healthcare costs
President Obama campaigned on a healthcare reform plan that did not include mandatory health insurance. Hillary Clinton wanted mandatory health insurance with no opting out. In 2009, the President said he would support making health insurance mandatory with the cost covered by employers, but those who could not afford to pay and small businesses would be exempt. What obstacles to efficiency does optional health insurance create? Optional healthcare _______. A. results in more than the efficient quantity of healthcare B. eliminates moral hazard C. decreases the spread of infectious diseases because people with infectious diseases will be less likely to visit healthcare facilities D. leads to an adverse selection problem E. creates an incentive to overuse healthcare facilities
leads to an adverse selection problem
The problem that occurs when it is not possible to distinguish reliable products from lemons, and there are too many lemons and too few reliable products, is the ______ problem. A. inefficient market B. lemons C. asymmetric market D. market defect
lemons
The asymmetric information problem in the market for healthcare services is _______. A. some people cannot afford private healthcare insurance B. that the healthiest people choose to be insured C. hospitals prefer to treat patients with serious health needs because this maximizes hospital profit D. people know when they have a healthy lifestyle E. medical workers have private information about a patient's condition, the treatments available, and the cost-effectiveness of the treatment they prescribe
medical workers have private information about a patient's condition, the treatments available, and the cost-effectiveness of the treatment they prescribe
The asymmetric information problem in the market for healthcare services is _______. A. that the healthiest people choose to be insured B. medical workers have private information about a patient's condition, the treatments available, and the cost-effectiveness of the treatment they prescribe C. hospitals prefer to treat patients with serious health needs because this maximizes hospital profit D. some people cannot afford private healthcare insurance E. people know when they have a healthy lifestyle
medical workers have private information about a patient's condition, the treatments available, and the cost-effectiveness of the treatment they prescribe
The knowledge that auto-insurance companies obtain from smartphone apps that monitor their customers' driving habits is _______. A. asymmetric but not private information B. private and asymmetric information C. neither private nor asymmetric information D. private but not asymmetric information
neither private nor asymmetric information
Pam is a low-risk careful driver and Fran is a high-risk aggressive driver. To reveal their driver types, an auto-insurance company _______. A. offers policies that enable drivers to reveal their private information B. charges a higher premium to owners of newer cars than to owners of older cars C. requires drivers to categorize themselves as high-risk or low-risk on the application form D. uses a pooling equilibrium E. refuses to insure high-risk drivers
offers policies that enable drivers to reveal their private information
A pooling equilibrium is the outcome when _____ available and an ______ person cannot determine quality. A separating equilibrium is the outcome when signaling provides _____ information to a previously _____ person. A. only one message is; informed; full; informed B. only one message is; uninformed; full; uninformed C. two messages are; informed; no; informed D. two messages are; uninformed; no; uninformed
only one message is; uninformed; full; uninformed
A pooling equilibrium is the outcome when _____ available and an ______ person cannot determine quality. A separating equilibrium is the outcome when signaling provides _____ information to a previously _____ person. A. two messages are; uninformed; no; uninformed B. only one message is; uninformed; full; uninformed C. two messages are; informed; no; informed D. only one message is; informed; full; informed
only one message is; uninformed; full; uninformed
A market with asymmetric information is one in which ______. A. sellers offer a product for sale at a low price and buyers are pleased to get a bargain B. only the buyers or the sellers have information about the quality of the product C. sellers know how reliable the product is and they share that information with buyers D. buyers are willing to pay less for the product than the seller is offering it for sale
only the buyers or the sellers have information about the quality of the product
The private market delivers too little healthcare because _______. A. too many young healthy people buy insurance B. insurance companies cannot avoid the problems of moral hazard and adverse selection C. pre-existing health conditions are too costly to insure D. insurance companies cannot monitor healthcare providers
pre-existing health conditions are too costly to insure
An increase in the demand for land ______. A. raises the equilibrium rental rate but leaves the equilibrium quantity of land unchanged B. has no effect on the equilibrium rental rate or the equilibrium quantity of land C. raises the equilibrium rental rate and increases the equilibrium quantity of land D. increases the equilibrium quantity of land but leaves the equilibrium rental rate unchanged
raises the equilibrium rental rate but leaves the equilibrium quantity of land unchanged
Insurers aim to track drivers through smartphones Auto-insurance companies are testing smartphone apps that monitor their customers' driving habits. Source: Forbes, August 5, 2014 How might smartphone monitoring of driving habits influence adverse selection and moral hazard? Smartphone monitoring of driving habits _______ adverse selection because _______. A. reduces; careless drivers cannot benefit from private information about their bad driving B. creates; it eliminates a separating equilibrium C. creates; only young, inexperienced drivers will enjoy having a smartphone app D. has no effect; people will continue to drive as they have always driven E. reduces; when careless drivers are approved for insurance, they will drive in an aggressive manner even if they have the smartphone app
reduces; careless drivers cannot benefit from private information about their bad driving
The lemons problem arises in markets in which ______. A. buyers have private information B. sellers are better informed than buyers about which products are reliable C. there is a shortage of lemons D. buyers are better informed than sellers about which products are reliable
sellers are better informed than buyers about which products are reliable
In 1811, in England, the wage rate of young, low-skilled mill workers was cut. The workers, led by Ned Ludd and known as Luddites, broke into factories at night and destroyed the new machines that their employers were using. If technological change increases productivity, why didn't the new milling technologies in the early 1800s increase the wage rate of mill workers? The new machines were _______ labor. A. complements of low-skilled labor B. substitutes for low-skilled labor C. substitutes for high-skilled labor
substitutes for low-skilled labor
Advances in computer technology create jobs because _______. A. computers are a substitute for most types of labor B. the resulting decrease in the VMP of labor lowers wage rates below the profit-maximizing level and increases hiring C. the supply of labor increases as workers move into the computer technology sector D. technology enables workers to perform tasks that were previously impossible
technology enables workers to perform tasks that were previously impossible
The demand for a factor of production is called a derived demand because it is derived from ______. A. the cost of using that factor B. the demand for the goods and services produced by the factor C. the availability of its substitutes D. its relationship to the demand for other factors of production
the demand for the goods and services produced by the factor
The United States overprovides healthcare if _______. Other countries underprovide healthcare if _______. A. the marginal social benefit from healthcare exceeds its marginal social cost; the marginal social cost of healthcare exceeds it marginal social benefit B. the healthcare efficiency index is greater than 100; the healthcare efficiency index is less than 100 C. foreigners come to the United States for healthcare; foreigners do not come to other countries for healthcare D. the marginal social cost of healthcare exceeds it marginal social benefit; the marginal social benefit from healthcare exceeds its marginal social cost E. healthcare expenditure per person exceeds healthcare expenditure per person in other countries; healthcare expenditure per person is less in other countries than healthcare expenditure per person in the United States
the marginal social cost of healthcare exceeds it marginal social benefit; the marginal social benefit from healthcare exceeds its marginal social cost
USDA to grant $3 million for robots to roam farmlands The USDA's National Robotics Initiative (NRI) will give $3 million in grants to farm robotics researchers. Already robots herd sheep, sort grapes, and distinguish good lettuce leaves from bad ones. Research funded by the NRI will develop harvesting systems for orchards; robots that pick, fertilize, and plant apple trees; and new ways to use drones to collect and analyze farm data. Source: Modern Farmer, December 31, 2015 Explain how the widespread use of farm robots will create better paying farm jobs. Farm robots create better paying farm jobs because ______. A. using robot capital decreases the supply of farm labor, and when the supply of labor decreases, the wage rate rises B. using robots shifts the demand curve for farm labor leftward C. using robot capital increases the demand for high-skilled labor and decreases the supply of high-skilled labor, which increases the wage rate D. the new robot technology increases the demand for high-skilled labor, and when the demand for labor increases the wage rate rises E. using robots increases the supply of fruit
the new robot technology increases the demand for high-skilled labor, and when the demand for labor increases the wage rate rises
When dealers provide warranties in a used-car market _______. A. the outcome is a pooling equilibrium. B. the outcome is a separating equilibrium C. buyers don't always believe the signal because the cost of sending a false signal is low D. the outcome is inefficient
the outcome is a separating equilibrium
The value of marginal product equals _______. A. marginal product divided by marginal revenue B. the price of a unit of output multiplied by the marginal product of the factor of production C. marginal revenue divided by marginal product D. the change in total product divided by the change in labor
the price of a unit of output multiplied by the marginal product of the factor of production
When healthcare services are delivered under a system of universal coverage and a single payer as in Canada and the United Kingdom, _______. A. the outcome is fair because everyone has equal access to services B. the quantity demanded exceeds the quantity supplied, and the result is a long wait time for treatment C. the government chooses the quantity of care to supply, and this is determined by the demand for healthcare D. a market equilibrium determines the quantity of healthcare service
the quantity demanded exceeds the quantity supplied, and the result is a long wait time for treatment
The percentage of commercial buildings that are new in Hong Kong is greater than the percentage in Chicago because ______. A. the supply of land in Hong Kong is greater than in Chicago, so Hong Kong land is used less intensively and more new spacious commercial buildings are constructed B. the supply of land is perfectly inelastic, the demand for new commercial buildings in Hong Kong is greater than the demand in Chicago, and a greater quantity of land has been supplied on which to erect new commercial buildings C. the demand for land in Hong Kong is perfectly elastic, so Hong Kong land is used more intensively and more new taller commercial buildings are constructed D. the supply of land in Hong Kong is smaller than in Chicago, so Hong Kong land is used more intensively and more new taller commercial buildings are constructed E. new firms have moved to Hong Kong and have increased both the demand for and the supply of land and new commercial buildings.
the supply of land in Hong Kong is smaller than in Chicago, so Hong Kong land is used more intensively and more new taller commercial buildings are constructed
Some car dealers offer used cars for sale with warranties and some offer them without warranties. In the market for used cars, _______. A. eventually all cars will have warranties and all used cars will be sold for the same price because a car with no warranty sends a signal that the car is a lemon B. eventually all warranties will be eliminated because advances in technology will eliminate the production of lemons. The price of all used cars will rise C. the existence of warranties create a pooling equilibrium D. no demand exists for cars without warranties because everyone knows that these cars are lemons E. the willingness to pay for a car without a warranty is less than the willingness to pay for a car with a warranty, so the equilibrium price for a car without a warranty is less than the equilibrium price for a car with a warranty
the willingness to pay for a car without a warranty is less than the willingness to pay for a car with a warranty, so the equilibrium price for a car without a warranty is less than the equilibrium price for a car with a warranty
Some coaches earn much more than others because _______. A. they have a higher VMP than the other coaches B. they are represented by the coaches' union C. the size of student populations vary D. some teams are better than others
they have a higher VMP than the other coaches
If you have a late-model car that you know isn't a lemon, you will most likely sell it ______. A. either privately or to a dealerlong dash—either way you will receive the same price B. to a dealer if he offers you more than the price of a lemon C. privately because a private buyer will believe that you have a good car D. privately because a private buyer will offer you more than a dealer would E. to a dealer because a dealer will offer you a warranty
to a dealer if he offers you more than the price of a lemon
The lemons problem is the problem that when it is not possible to distinguish reliable products from defective ones, there are _____ defective products and _____ reliable ones. A. too few; too many B. no; only C. too many; too few D. some; some
too many; too few
If you have private information that you are a more aggressive driver than your driving record indicates, you ______. A. will not buy collision insurance because an auto-insurance company would charge you with fraud if they discover you have prior information about your driving habits B. will buy collision insurance and take a large deductible because you prefer to pay lower premiums C. will not buy collision insurance because being an aggressive driver does not translate into being a driver who has frequent accidents D. will buy collision insurance but you will not take a large deductible or a no-claim bonus because your probability of having an accident is high E. will buy collision insurance and take a large deductible because being an aggressive driver does not translate into being a driver who has frequent accidents
will buy collision insurance but you will not take a large deductible or a no-claim bonus because your probability of having an accident is high
The problem of asymmetric information is dealt with by _______. A. government programs that encourage healthy lifestyles B. increasing the marginal social benefit from healthcare C. advances in technology that correctly estimate future needs D. HMOs, with insurance companies selecting and monitoring service providers E. more government intervention in the healthcare market
HMOs, with insurance companies selecting and monitoring service providers
The problem of asymmetric information is dealt with by _______. A. HMOs, with insurance companies selecting and monitoring service providers B. government programs that encourage healthy lifestyles C. increasing the marginal social benefit from healthcare D. more government intervention in the healthcare market E. advances in technology that correctly estimate future needs
HMOs, with insurance companies selecting and monitoring service providers
Insurers aim to track drivers through smartphones Auto-insurance companies are testing smartphone apps that monitor their customers' driving habits. Source: Forbes, August 5, 2014 How would auto-insurance companies use information on driving habits? Is this information private and asymmetric? The insurance companies _______ use the information from the smartphone app on driving habits because _______. A. can; it separates the market into two groupslong dash—careful drivers and aggressive and careless drivers B. cannot; drivers will change their habits when they have the smartphone app C. cannot; it separates the insured into two groupslong dash—those with smartphones and those without smartphoneslong dash—and this distinction is useless to insurance companies D. can; it separates the insured into two groupslong dash—those with smartphones who are young, inexperienced drivers and those without smartphones who are older experienced drivers
can; it separates the market into two groupslong dash—careful drivers and aggressive and careless drivers
Your family's healthcare costs: $19,393 The average healthcare costs of American families who are insured through their jobs is $19,393, up 7.3 percent or $1,319 from last year. Of this increase, workers' out-of- pocket costs rose 9.2 percent. Payroll deductions for insurance coverage rose 9.3 percent. Employers have increasingly been offering health plans with larger deductibles to control their own costs and to force workers to use medical care more selectively. Source: CNNMoney, May 11, 2011 How do larger deductibles chosen by employers influence the distribution of healthcare costs? Larger deductibles chosen by employers ______ the cost paid by employers and _______ the cost paid by insured employees. A. increase; decrease B. decrease; decrease C. increase; increase D. decrease; do not change E. decrease; increase
decrease; increase
Larger deductibles and larger out-of-pocket costs _______ moral hazard because _______. A. decrease; people have an incentive to adopt a healthy lifestyle B. decrease; the majority of voters support Obamacare and larger deductibles and want to make it work C. increase; people who think health insurance companies make too much money through large deductibles have no incentive to adopt a healthy lifestyle D. do not change; it takes more than a large deductible to change a person's lifestyle E. increase; people who can afford large deductibles will wait to have major surgery until after they have private insurance
decrease; people have an incentive to adopt a healthy lifestyle
The healthcare system in the United States costs per person ______ what it costs in other rich countries and U.S. health outcomes rank ______. A. half; higher B. double; lower C. half; lower D. double; higher
double; lower
The market for college acceptance or placement _______ adverse selection because _______. A. experiences; out-of-state students generally pay higher tuition fees B. does not experience; neither schools nor hopefuls use their private information to their best advantage C. experiences; both schools and hopefuls have private information so the best match is not always achieved D. experiences; most students want to attend a college that is near home E. does not experience; both schools and hopefuls send signals that overcome adverse selection
experiences; both schools and hopefuls have private information so the best match is not always achieved
Hong Kong is much more densely populated than is the United States. The rental rate on land in Hong Kong is _______ than the rental rate on land in Chicago because the _______ in Hong Kong than it is in Chicago. A. higher; demand for land is greater B. higher; supply of land is smaller C. lower; supply of land is greater D. lower; demand for land is smaller
higher; supply of land is smaller
Mary is an 18-year-old student, who recently bought a used car. Mary is looking to buy car insurance. Insurance companies compete for her business. Is there a moral hazard problem in a transaction between Mary and an insurance company? Explain why or why not. There ______ a moral hazard problem in a transaction between Mary and an insurance company because ______. A. is; 18-year-old drivers have insufficient experience to cope with driving emergencies B. is; Mary doesn't know whether the car is a lemon C. is not; how carefully Mary drives is not affected by the amount of collision coverage she buys D. is; Mary is a high-risk driver, otherwise she would not buy car insurance E. is; if Mary purchases insurance with full collision coverage she has an incentive to drive less carefully
is; if Mary purchases insurance with full collision coverage she has an incentive to drive less carefully
Is the market for college football coaches competitive? If it is, why don't they all earn the same wage rate? Is the market for Nick Saban competitive? How is his compensation determined? The market for college football coaches ______ competitive because ______. A. is; there are no barriers to entry into coaching B. is not; only a few people are talented enough to coach C. is; most college football players become college football coaches D. is not; the money available for football programs is not evenly distributed among colleges
is; there are no barriers to entry into coaching
If U.S. healthcare was delivered like basic education is delivered, the U.S. healthcare system would be __________like that in Canada. The market for healthcare would be _______. A. less; inefficient because the quantity of healthcare supplied is determined by the government, and the quantity demanded exceeds the quantity supplied B. less; efficient because everyone would have healthcare insurance C. more; inefficient because the Canadian allocation method is by lottery D. more; inefficient because the quantity of healthcare supplied is determined by the government, and the quantity demanded exceeds the quantity supplied E. more; efficient because everyone would have healthcare insurance
more; inefficient because the quantity of healthcare supplied is determined by the government, and the quantity demanded exceeds the quantity supplied
If U.S. healthcare was delivered like basic education is delivered, the U.S. healthcare system would be __________like that in Canada. The market for healthcare would be _______. A. more; efficient because everyone would have healthcare insurance B. less; inefficient because the quantity of healthcare supplied is determined by the government, and the quantity demanded exceeds the quantity supplied C. less; efficient because everyone would have healthcare insurance D. more; inefficient because the Canadian allocation method is by lottery E. more; inefficient because the quantity of healthcare supplied is determined by the government, and the quantity demanded exceeds the quantity supplied
more; inefficient because the quantity of healthcare supplied is determined by the government, and the quantity demanded exceeds the quantity supplied
Value of marginal product is the value to a firm of hiring one more unit of a factor of production, which equals the _____ of a unit of _____ by the marginal product of the factor of production. A. quantity; output divided B. price; output multiplied C. quantity; input multiplied D. price; input divided
price; output multiplied
Smartphone monitoring of driving habits _______ moral hazard because ______. A. reduces; a driver who knows he is being monitored becomes less careless B. reduces; there is no longer a need for the no-claim bonus C. creates; once a driver is insured he drives more carelessly D. creates; it creates a separating equilibrium E. reduces; careless drivers cannot benefit from the private information about their bad driving
reduces; a driver who knows he is being monitored becomes less careless
Smartphone monitoring of driving habits _______ moral hazard because ______. A. reduces; careless drivers cannot benefit from the private information about their bad driving B. reduces; a driver who knows he is being monitored becomes less careless C. reduces; there is no longer a need for the no-claim bonus D. creates; it creates a separating equilibrium E. creates; once a driver is insured he drives more carelessly
reduces; a driver who knows he is being monitored becomes less careless
Insurers aim to track drivers through smartphones Auto-insurance companies are testing smartphone apps that monitor their customers' driving habits. Source: Forbes, August 5, 2014 How might smartphone monitoring of driving habits influence adverse selection and moral hazard? Smartphone monitoring of driving habits _______ adverse selection because _______. A. reduces; careless drivers cannot benefit from private information about their bad driving B. has no effect; people will continue to drive as they have always driven C. reduces; when careless drivers are approved for insurance, they will drive in an aggressive manner even if they have the smartphone app D. creates; it eliminates a separating equilibrium E. creates; only young, inexperienced drivers will enjoy having a smartphone app
reduces; careless drivers cannot benefit from private information about their bad driving
The sources of inefficiency in the U.S. health insurance market are _______. A. underprovision, and pre-existing conditions and other serious health risks that are uninsurable B. increasing rates of heart disease, cancer, and superbugs C. private insurance premiums D. too few hospitals E. large deductibles
underprovision, and pre-existing conditions and other serious health risks that are uninsurable
Judy knows that her car is a lemon and offers it for sale. The used-car market is working efficiently. Buyers ______ know her car is a lemon because ______. A. will; the price will be lower than the price of a good used car and she offers no warranty B. will; an efficient used car market has a pooling equilibrium C. will not; even if the market is efficient a buyer can never be sure of the quality of a used car D. will not; sellers of used cars are not honest E. will; in an efficient market, owners of used cars are honest
will; the price will be lower than the price of a good used car and she offers no warranty
