1. (a) Explain the difference between adverse selection and moral hazard. (b) How can adverse selection be dealt with? Would the involvement of the government in, say, a health- insurance market suffering from adverse selection problems rectify the situation, or would it create more problems?

For each of the following purchases, say whether you would expect the dogma of imperfect information to be relatively high or relatively low: Buying apples at a roadside stand Buying dinner at the neighborhood restaurant around the comer Buying a used laptop computer at a garage sale Ordering flowers over the internet for your friend in a different city

Why is it difficult to measure health outcomes?