Review Questions
Why might it be difficult for a buyer and seller to agree on a price when imperfect information exists?
What do economists, and used-car dealers, mean by a lemon?
What are some of the ways a seller of goods might reassure a possible buyer who is faced with imperfect information?
What are some of the ways a seller of labor, or someone looking for a job, might reassure a possible employer who is faced with imperfect information?
What are some of the ways that someone looking for a loan might reassure a bank that is faced with imperfect information about whether the loan will be repaid?
What is an insurance premium?
In an insurance system, would you expect each person to receive in benefits pretty much what they pay in premiums? Or is it just that the average benefits paid will equal the average premiums paid?
What is an actuarially fair insurance policy?
What is the problem of moral hazard?
How can moral hazard lead to insurance being more costly than was expected?
Define what deductibles, copayments, and coinsurance are.
How can deductibles, copayments, and coinsurance reduce moral hazard?
What is the key difference between a fee-for-service health-care system and a system based on health maintenance organizations?
How might adverse selection make it difficult for an insurance market to operate?
What are some of the metrics used to measure health outcomes?