Markets with Private Information

2. 12 Markets with Private Information CLICKER QUESTIONS

3. Checkpoint 12.2 Checkpoint 12.3 Checkpoint 12.1 Question 8 Question 5 Question 1 Question 9 Question 6 Question 2 Question 7 Question 10 Question 3 Question 4

4. CHECKPOINT 12.1 Question 1 Asymmetric information means that ___________. • the buyer always has information that the seller does not have • the seller must have information that the buyer does not have • either the buyer or the seller has information that the other does not have • the buyer and the seller have the same information • the seller has more information than the seller

5. CHECKPOINT 12.1 Question 2 The lemons problem in the used car market is that ______. • the price of a lemon is too high • the price of a lemon is too low • no lemons are bought or sold • only lemons are bought and sold • the price of a lemon is too high and too many lemons are traded

6. CHECKPOINT 12.1 Question 3 In the used car market with a pooling equilibrium, the price of a lemon is _____ the price of a good car, and with a separating equilibrium, the price of a lemon is ______ the price of a good car. • less than; equal to • equal to; less than • equal to; more than • more than; equal to • equal to; equal to

7. CHECKPOINT 12.1 Question 4 If buyers cannot assess the quality of used cars and there are no warranties, then___________. • only lemons are sold • only good cars are sold • good cars are sold at a higher price than lemons • there is no adverse selection problem • all cars (lemons and good cars) sell for the same price

8. CHECKPOINT 12.2 Question 5 Mark is an aggressive driver so he is more likely to buy auto insurance. This situation illustrates the idea of ________. • moral hazard • adverse selection • the lemons problem • inefficiency in the insurance market • a separating equilibrium

9. CHECKPOINT 12.2 Question 6 When Sam makes an agreement and then behaves after the agreement in a way to increase his benefits and harm the other party to the agreement, Sam is illustrating ________. • signaling • adverse selection • moral hazard • the cost of contracting • a pooling equilibrium

10. CHECKPOINT 12.2 Question 7 Screening _______. • leads to a pooling equilibrium in the insurance market • means that an uninformed person passes knowledge to an informed person • makes no-claim bonuses unnecessary • explains why insurance companies offer both low-premium, high-deductible policies and high-premium, low-deductible policies. • makes the insurance market inefficient

11. CHECKPOINT 12.3 Question 8 Moral hazard in the market for health-care services leads ______. • patients to adopt healthier life styles • to a separating equilibrium • everyone to buy health insurance • healthy people not to bother buying health insurance • health-care providers to overtreat patients

12. CHECKPOINT 12.3 Question 9 The missing market in the health-care market is the insurance market for _______. • young healthy people • infectious diseases • people who have pre-existing health conditions • people who are employed by HMOs • vaccinations

13. CHECKPOINT 12.3 Question 10 Vaccinations against infectious diseases ____ , so private markets will provide _____ efficient quantity of vaccinations. • are a public good; less than the • are a public good; the • lead to adverse selection; less than the • have a positive externality; less than the • have a positive externality; the