Microeconomics (9th Edition) (Pearson Series in Economics)
9th Edition
ISBN: 9780134184241
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
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Question
Chapter 17, Problem 8E
(a)
To determine
The practice of subsidizing the consumer reports for symmetric information.
(b)
To determine
The practice of imposing the quality standards.
(c)
To determine
The practice of providing extensive warranty on high quality goods.
(d)
To determine
The practice of requiring all firms to provide extensive warranties.
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Which is an example of asymmetric information?
a person knows more about health decisions they make than the health insurance company
a brand knows more about the durability of a new product than consumers
a smart phone owner knows more about the chances that the phone willI be dropped in water than the phone
insurance company
all of these.
Describe information imperfection and its role in market failure. Do consumers possess perfect acknowledge regarding their health status and the treatment options available to them?
George Akerloff focused the market for used cars and discussed an issue later generally called the "lemons problem." A "lemon" is a low quality used car, with the seller but not the potential buyer aware of this. Since sellers have more information about the quality of the car:
a. adverse selection causes an inefficiently large number of transactions to occur.
b. moral hazard causes an inefficiently large number of transactions to occur.
c. moral hazard causes an inefficiently small number of transactions to occur.
d. adverse selection causes an inefficiently small number of transactions to occur.
Chapter 17 Solutions
Microeconomics (9th Edition) (Pearson Series in Economics)
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- Briefly explain what it means for information to be asymmetric. a. What is Moral Hazard? b. Identify and briefly explain three methods that insurance companies could use to off-set the moral hazard associated with their industry. c. What is Adverse Selection?arrow_forwardThe text points out that asymmetric information can have deleterious effects on market outcomes. a. Explain how asymmetric information about a hidden action or a hidden characteristic can lead to moral hazard or adverse selection. b. Discuss a few tactics that managers can use to overcome these problems.arrow_forwardRead the following article and then answer the questions that follow: Without question, the most important positive action you can take to prevent illness and disease is exercise. Exercise prevents a long list of diseases that can cause chronic or severe illness, disability, and even death, including cancer, heart disease, stroke, high blood pressure, vascular disease, diabetes, obesity, and osteoporosis. Exercise also prevents mental health illness and disease disorders, including depression, anxiety, and stress. While some of these disease processes can be reversed with exercise and healthy life-style, some cannot. Preventing them from starting is the number one goal. The most negative lifestyle behaviour is smoking. Smoking contributes to the development of almost all diseases, notably cancer, heart disease, high blood pressure, high cholesterol, diabetes, and asthma. Smoking has the following negative health effects: lowers immunity, making you more likely to get bronchitis,…arrow_forward
- In circumstances of imperfect information should one expect the market to be efficient? Explain briefly.arrow_forwardThe Subject: Microeconomic Chapter Seven What are the asymmetric information problems in the market for health insurance?arrow_forwardAdverse selection is good ? like the The Affordable Care Act (Obamacare) deals with the problem of adverse selection by using the power of the government to fine individuals who do not sign up for health insurance. do you think it brings benefits or not ?arrow_forward
- In Hayward, there are 100 people who want to sell their used cars. Everybody knows that 50 of these cars are "lemons" and 50 of these cars are "peaches." The problem is that nobody except the original owners know which are which. Owners of lemons will be happy to get rid of their cars for any price greater than $200. Owners of peaches will be willing to sell them for any price greater than $1,500 but will keep them if they can't get $1,500. There are a large number of buyers who would be willing to pay $2,500 for a peach but would pay only $300 for a lemon. When these buyers are not sure of the quality of the car they buy, they are willing to pay the expected value of the car, given the knowledge they have. If all 100 used cars in Hayward were for sale, how much would buyers be willing to pay for a used car? Type the number without the thousands separator or $ sign.arrow_forwardPeople drive faster when they have auto insurance. This is an example of: a. Adverse selection. b. Asymmetric information. c. Moral hazard.arrow_forwardIf people get higher pay from insurance than their premiums. Will this increase or decrease the death rate of average persons? Is this an example of moral hazard or adverse seletion? How will an insurance company deal with these problems?arrow_forward
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