Question : 12.4   Chapter Figures The figures show two auto insurance markets, one : 1241110

12.4   Chapter Figures

The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers.

1) The market for aggressive drivers is illustrated in ________, and the market for safe drivers is illustrated in ________.

A) Figure A; Figure A also

B) Figure B; Figure A

C) Figure A; Figure B

D) Figure B; Figure B also

E) More information is needed to answer the question.

2) In a pooling equilibrium, aggressive drivers pay a premium of ________ and safe drivers pay a premium of ________.

A) $1,000; $1,000

B) $800; $1,200

C) $1,200; $800

D) $1,000; $800

E) $1,200; $1,000

3) In a separating equilibrium, aggressive drivers pay a premium of ________ and safe drivers pay a premium of ________.

A) $1,000; $1,000

B) $800; $1,200

C) $1,200; $800

D) $1,000; $800

E) $1,200; $1,000

4) In a pooling equilibrium, there ________ a deadweight loss in the market for safe drivers, and there ________ a deadweight loss in the market for aggressive drivers.

A) is; is

B) is; is not

C) is not; is

D) is not; is not

E) might be; might be

5) In a pooling equilibrium, there is ________ of insurance in the market for safe drivers, and there is ________ of insurance in the market for aggressive drivers.

A) overprovision; underprovision

B) overprovision; overprovision

C) underprovision; underprovision

D) underprovision; overprovision

E) underprovision; an efficient quantity

6) In a separating equilibrium, there is ________ of insurance in the market for safe drivers, and there is ________ of insurance in the market for aggressive drivers.

A) overprovision; underprovision

B) overprovision; overprovision

C) underprovision; underprovision

D) underprovision; overprovision

E) an efficient quantity; an efficient quantity

7) The figures show the expenditures per person on health care and the efficiency of the health care system in 8 different nations. The United States is bar ________ in expenditures per person and is bar ________ in efficiency index.

A) A; A

B) B; A

C) A; D

D) E; E

E) D; B

12.5   Integrative Questions

1) Moral hazard typically occurs because

A) people are dishonest.

B) agreements sometimes create incentives that are costly to monitor so people can act in their self-interest.

C) workers possess diminishing marginal productivity.

D) screening leads to informed people revealing their relevant private information.

E) workers possess adverse selection.

2) Moral hazard results from ________ information, and adverse selection results from ________ information.

A) private; private

B) private; public

C) public; private

D) public; public

E) None of the above answers is correct because both are the result of the lemons problem.

3) If a salesperson is paid by the volume of sales he or she makes, then the

A) moral hazard problem is diminished.

B) lemons problem can be screened.

C) moral hazard problem is enhanced.

D) adverse selection problem is enhanced.

E) None of the above answers is correct.