Deck 19: Information and Health Economics

Question 1

_____ occurs when one party in an exchange has better information than the other party.

A) Moral hazard
B) Screening
C) Adverse selection
D) Asymmetric information

Answer 1

D

Question 2

Asymmetric information is a situation where:

A) there is an increased tendency to take risks because others will pay some of the potential costs associated with taking such risks.
B) one party in an exchange has better information than the other party.
C) the acquisition of reliable information about a product or resource helps someone make a more informed decision on a purchase or sale.
D) both parties have reliable information but one is able to maximize the outcome at the expense of the other.

Answer 2

B

Question 3

Adverse selection occurs in a situation where:

A) there is an increased tendency to take risks because others will pay some of the potential costs associated with taking such risks.
B) one party in an exchange has better information than the other party.
C) the acquisition of reliable information about a product or resource helps someone make a more informed decision on a purchase or sale.
D) one party in a transaction has better information, resulting in a less desirable selection of goods and services in the marketplace due to uninformed buyers or sellers.

Answer 3

D

Question 4

_____ occurs when one party in an exchange has better information than the other party, resulting in a less desirable selection of goods and services in the marketplace due to uninformed buyers or sellers.

A) Moral hazard
B) Screening
C) Adverse selection
D) Asymmetric information

Question 5

_____ is a situation where buyers and sellers do not have access to the same level of information about a product or service.

A) Moral hazard
B) Screening
C) Adverse selection
D) Asymmetric information

Question 6

Which one of the following is an example of asymmetric information?

A) Martine is buying a house and is told that it has a new roof. The seller does not tell her that although the front part of the roof is new, the back part of the roof is 30 years old.
B) Bart is buying a new car that has had no previous owners and no accidents.
C) Joanne has been rehired by a firm where she used to work, and thus the managers are aware of her abilities.
D) Demetri's parents are buying a new car and are selling their old car to him. He has driven their car on numerous occasions.

Question 7

Joshua buys a secondhand dresser over the Internet and, upon receipt of the dresser, discovers that the inside of one of the drawers is held in place by duct tape. This is an example of:

A) moral hazard.
B) asymmetric information.
C) adverse selection.
D) screening.

Question 8

Mary applies for a personal bank loan to do some house repairs before selling it. She does not disclose to the bank that she actually is not moving but is using the loan money to take a vacation in the Bahamas. This is an example of:

A) moral hazard.
B) screening.
C) adverse selection.
D) asymmetric information.

Question 9

Assuming that information is symmetrical in the used car market where both lemons and plums are sold, the equilibrium price for plums is _____ the equilibrium price for lemons.

A) greater than
B) less than
C) equal to
D) 50% more than

Question 10

Assuming that information is symmetrical in the used car market where both lemons and plums are sold, the equilibrium price for lemons is _____ the equilibrium price for plums.

A) greater than
B) less than
C) equal to
D) 50% less than

Question 11

Assuming that information is asymmetric in the used car market where both lemons and plums are sold, the equilibrium price for plums will be _____ what it is in a market with symmetric information.

A) lower than
B) higher than
C) equal to
D) 50% less than

Question 12

In a situation of asymmetric information in the used car market where both lemons and plums are sold, the _____ the risk of receiving a lemon, the greater the _____ in demand for plums.

A) lower; decline
B) lower; elasticity
C) greater; decline
D) greater; increase

Question 13

As the probability of buying used car that is a lemon approaches _____%, the demand for plums _____ the demand for lemons.

A) 50; equals
B) 59; approaches
C) 100; equals
D) 100; approaches

Question 14

Asymmetric information _____ mutually advantageous trades.

A) prevents
B) encourages
C) requires
D) has no effect on

Question 15

Leonard is considering purchasing a lightly used lawnmower that was returned to the retailer after one week. Although it is discounted heavily, Leonard wonders what is wrong with it and does not purchase it. This is an example of:

A) the lemon effect.
B) adverse selection.
C) moral hazard.
D) screening.

Question 16

In the used car market, if plums exit the market completely, the equilibrium price becomes the equilibrium price for _____, and only _____ are supplied.

A) plums; plums
B) plums; lemons
C) lemons; lemons
D) lemons; plums

Question 17

Anita is selling a sofa, but due to _____, she is unable to get the price she wants.

A) the lemon effect
B) adverse selection
C) moral hazard
D) screening

Question 18

_____ is the acquisition of reliable information about a product or resource to help someone make a more informed decision on a purchase or sale.

A) Asymmetric information
B) Signaling
C) Moral hazard
D) Screening

Question 19

Clarissa is interviewing several people for a job at her firm. Before making a decision, she checks their references and runs a credit report. This is an example of:

A) asymmetric information.
B) signaling.
C) moral hazard.
D) screening.

Question 20

_____ is providing reliable information about a product or resource that helps another party make a more informed decision on a purchase or sale.

A) Asymmetric information
B) Signaling
C) Moral hazard
D) Screening

Question 21

_____ can increase demand above what would occur in a market with asymmetric information by providing reliable information about the product or resource.

A) Asymmetric information
B) Signaling
C) Moral hazard
D) Screening

Question 22

By providing reliable information about a product or resource so that another party can make an informed purchase or sale decision, _____ allows the firm to charge a higher price.

A) asymmetric information
B) screening
C) moral hazard
D) signaling

Question 23

Which of the following is true about signaling?

A) It prevents a firm from charging a higher price.
B) It always reduces demand.
C) It is a credible source that conveys information to help someone make a more informed decision on a purchase or sale.
D) It is acquiring adequate information to help someone make a decision on a purchase or sale.

Question 24

_____ increases demand by reducing the adverse selection problem.

A) Asymmetric information
B) Information failure
C) Moral hazard
D) Signaling

Question 25

Signaling _____ demand by _____ the adverse selection problem.

A) increases; decreasing
B) increases; increasing
C) decreases; increasing
D) decreases; decreasing

Question 26

Clarence is trying to decide between several different microwave ovens. He buys the microwave that offers a warranty. This is an example of:

A) asymmetric information.
B) screening.
C) moral hazard.
D) signaling.

Question 27

Clarice is considering several different shirts on a department store's website. She purchases the shirt that has the best reviews and the most likes. This is an example of:

A) asymmetric information.
B) screening.
C) moral hazard.
D) signaling.

Question 28

The _____ effect is the increase in earnings that occurs from obtaining higher credentials as opposed to obtaining higher levels of human capital.

A) signaling
B) screening
C) sheepskin
D) moral

Question 29

The sheepskin effect is the:

A) increase in earnings that is obtained from higher credentials as opposed to higher levels of human capital.
B) increased tendency to take risks because some of the costs that are associated with taking such risks will paid by others.
C) tendency for one party in an exchange to have better information than the other party.
D) acquisition of reliable information about a product or resource to help make a more informed decision on a purchase or sale.

Question 30

To make a profit, insurance companies must _____ make more revenue by selling policies than they spend on paying claims.

A) always
B) never
C) occasionally
D) on average

Question 31

_____ is one reason that insurance companies have difficulty predicting future claims.

A) Adverse selection
B) Lack of statistics
C) Lack of data
D) Screening

Question 32

_____ is one reason that insurance companies have difficulty predicting future claims.

A) Signaling
B) Moral hazard
C) Lack of data
D) Screening

Question 33

With perfect information, insurance companies will sell _____ policies at a _____ price.

A) fewer; lower
B) fewer; higher
C) more; lower
D) more; higher

Question 34

With imperfect information, insurance companies will sell _____ policies at a _____ price.

A) fewer; lower
B) fewer; higher
C) more; lower
D) more; higher

Question 35

For the insurance company, _____ results in adverse selection of customers.

A) screening
B) signaling
C) moral hazard
D) asymmetric information

Question 36

For the insurance company, asymmetric information results in _____ customers.

A) the screening of
B) a decrease in
C) an increase in
D) an adverse selection of

Question 37

For the insurance company, _____ results in _____ customers.

A) screening; the signaling of
B) signaling; the screening of
C) moral hazard; an increase in
D) asymmetric information; the adverse selection of

Question 38

_____ is a situation where there is an increased tendency to take risks because others will pay some of the potential costs associated with taking such risks.

A) Screening
B) Signaling
C) Moral hazard
D) Asymmetric information

Question 39

Moral hazard is a situation where:

A) one party in an exchange has better information than the other party.
B) there is an increased tendency to take risks because others will pay some of the potential costs associated with taking such risks.
C) reliable information about a product or resource to help someone make a more informed decision on a purchase or sale is provided.
D) the acquisition of reliable information about a product or resource to help someone make a more informed decision on a purchase or sale.

Question 40

Moral hazard tends to change _____, not morals.

A) opportunity
B) behavior
C) aptitude
D) signaling

Question 41

Moral hazard tends to change:

A) behavior, not opportunity.
B) behavior, not morals.
C) opportunity, not behavior.
D) morals, not behavior.

Question 42

Benedict failed to renew his driver's license before it expired. He drives very slowly and very carefully to the Department of Motor Vehicles to renew it. This is an example of:

A) adverse selection.
B) screening.
C) moral hazard.
D) asymmetric information.

Question 43

Violet has automobile insurance with full coverage and no deductible. As a result, Violet is a very careless driver. This is an example of:

A) adverse selection.
B) screening.
C) moral hazard.
D) asymmetric information.

Question 44

After Lawrence purchases a home security system, he often leaves his doors unlocked. This is an example of:

A) adverse selection.
B) screening.
C) moral hazard.
D) asymmetric information.

Question 45

_____ occurs when a buyer and seller have asymmetric information prior to entering into a transaction.

A) Adverse selection
B) Equilibrium
C) Moral hazard
D) Market failure

Question 46

_____ occurs when there is asymmetric information between two parties that changes behavior after a transaction.

A) Adverse selection
B) Equilibrium
C) Moral hazard
D) Market failure

Question 47

When the _____ was created, bank customers shifted their focus from concern about the excessive risks that banks take to the interest rates that banks pay on deposits.

A) Federal Deposit Insurance Corporation (FDIC)
B) Federal Reserve
C) President's Council of Economic Advisors
D) Internet Banking Association

Question 48

When the Federal Deposit Insurance Corporation (FDIC) was created, bank customers became less concerned about the safety of their deposits. This resulted in _____ because when banks were no longer under the intense scrutiny of their customers, they began to engage in speculative lending.

A) adverse selection
B) equilibrium
C) moral hazard
D) market failure

Question 49

_____ is the amount that a consumer must pay before the insurance provider will pay any claims on the policy.

A) A copayment
B) A deductible
C) A cap
D) An annual fee

Question 50

A deductible is:

A) an individual's share of the cost on a claim with the insurance provider paying the rest.
B) an annual fee.
C) a lifetime cap.
D) the amount that a consumer must pay before the insurance provider will pay any claims on the policy.

Question 51

_____ is an individual's share of the cost on a claim with the insurance provider paying the rest.

A) A copayment
B) A deductible
C) A lifetime cap
D) An annual fee

Question 52

A copayment, as defined in the textbook, is:

A) an individual's share of the cost on a claim with the insurance provider paying the rest.
B) an annual fee.
C) a lifetime cap.
D) the amount that a consumer must pay before the insurance provider will pay any claims on the policy.

Question 53

During a hurricane, Rose's home suffers $18,000 in damages. She has a $100,000 homeowner's policy with a $2,500 deductible. Rose will need to pay _____ out-of-pocket.

A) zero
B) $2,500
C) $18,000
D) $97,500

Question 54

Daisy is in an automobile accident where her car suffers $700 in damages. Daisy's automobile insurance policy has a $1,000 deductible. Daisy will need to pay _____ out-of-pocket.

A) zero
B) $700
C) $1,000
D) $1,700

Question 55

Buyers of insurance who are likely to file a claim generally prefer:

A) low-deductible policies.
B) high-deductible policies.
C) policies with a high copayment.
D) policies with a low copayment.

Question 56

Buyers with low-deductible policies are _____ going to file a claim.

A) never
B) always
C) most likely
D) probably not

Question 57

Buyers with high-deductible policies are _____ going to file a claim.

A) never
B) always
C) most likely
D) less likely

Question 58

In general, _____ result in _____ on an insurance policy.

A) low deductibles; lower prices
B) low deductibles; average prices
C) high deductibles; lower prices
D) high deductibles; average prices

Question 59

High deductibles on an insurance policy tend to lower the:

A) adverse selection.
B) copayment.
C) moral hazard.
D) market failure.

Question 60

Low deductibles on an insurance policy tend to increase the:

A) adverse selection.
B) copayment.
C) moral hazard.
D) market failure.

Question 61

The partial payment required by the insured individual for each insured event is a:

A) down payment.
B) copayment.
C) payment plan.
D) deductible.

Question 62

Health insurance providers typically use _____ copayments to _____ certain expensive consumer practices.

A) high; discourage
B) high; stabilize
C) low; prevent
D) low; intimidate

Question 63

Health insurance providers typically use _____ copayments to _____ certain cost-saving consumer practices.

A) high; prevent
B) low; encourage
C) high; stabilize
D) low; intimidate

Question 64

_____ copayment allows health insurance providers to manage costs and overcome the moral hazard problem.

A) No
B) A low
C) A high
D) Adding a low deductible to a low

Question 65

_____ is an annual limit on the amount of money that the insured is asked to pay.

A) A deductible
B) A copayment
C) An out-of-pocket maximum
D) A down payment

Question 66

_____ is a method that is used to determine the price of insurance based on a group's or an individual's history of claims.

A) Signaling
B) Experience rating
C) Mandated insurance
D) Open enrollment

Question 67

An experience rating is a form of:

A) signaling.
B) screening.
C) mandated insurance.
D) moral hazard.

Question 68

When an insurance company looks at the address of Tiffany's property to analyze if she needs flood insurance, it is:

A) signaling.
B) screening.
C) mandating insurance.
D) creating moral hazard.

Question 69

When an insurance company requires Timothy to undergo a health exam before issuing health insurance, the insurance company is:

A) establishing signaling.
B) performing a screening.
C) mandating insurance.
D) creating moral hazard.

Question 70

When the law requires an individual or a firm to purchase insurance, it is:

A) signaling.
B) screening.
C) voluntary.
D) mandated.

Question 71

_____ period is a select period of time in which an insurance policy can be purchased.

A) An open-enrollment
B) A mandated
C) A screening
D) A signaling

Question 72

Automobile insurance is an example of _____ insurance.

A) open-enrollment
B) mandated
C) screening
D) signaling

Question 73

The largest industry in the United States is the _____ industry.

A) automotive
B) textile
C) oil
D) health-care

Question 74

In the United States, health-care spending accounts for more than one out of every _____ dollars spent in the entire economy, as measured by GDP.

A) three
B) four
C) five
D) six

Question 75

_____ is a health-care system that ensures that health-care benefits are provided to all citizens.

A) Single-payer health care
B) Universal health coverage
C) The Affordable Care Act
D) Mandated insurance

Question 76

_____ is a health-care system where the government pays for the vast majority of health-care costs.

A) Single-payer health care
B) Universal health coverage
C) The Affordable Care Act
D) Mandated insurance

Question 77

Under a _____ system, funding generally comes from the government.

A) single-payer health-care
B) universal health coverage
C) affordable care
D) mandated insurance

Question 78

In the United States, many Americans rely on ____ insurance system.

A) a single-payer health-care
B) a universal health coverage
C) an affordable care
D) a private-sector

Question 79

_____ is a federal government program that provides health insurance for the elderly.

A) Medicare
B) Medicaid
C) The Affordable Care Act
D) Universal coverage

Question 80

_____ is a government program that provides health insurance for the disabled and those with low incomes.

A) Medicare
B) Medicaid
C) The Affordable Care Act
D) Universal coverage