Question

9. The strategy of reducing or eliminating risks by13. Tax taking a small share in many independent events or by A) who writes the check to the government taking advantage of the predictability associated with B) who really pays the tax. large numbers of independent events is known as: A) floating. B) specializing. C) pooling. D) screening. incidence refers to: C) the deadweight loss from the tax. D) the total revenue that the government collects from the tax 14. An industry with production that generates external costs produces a quantity of output that is: A) socially optimal. 10. A life insurance company will often require an applicant to submit to a brief physical exam to assess B) smaller than the socially optimal quantity that person's basic level of health. This practice is a C)larger than the socially optimal quantity. form of A) diversification; moral hazard B) signaling: deductibles C) reputation; adverse selection D) screening; adverse selection D) socially optimal if a specific subsidy is given to 15. You own a lemonade stand in a competitive market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power? A) The government abolishes the system of patents and copyrights. B) A booming economy increases the demand for lemonade and attracts entry into the market. C) The average total cost curve for firms in the industry is horizontal. D) You own exclusive rights to harvest lemons from all domestic citrus orchards. 11. Moral hazard occurs when individuals: A) do not do what is in their own best interest. B) know than other people do. C) have an incentive to violate their morals. D) know more about their actions than other people more about acceptable business behavior 12、The price elasticity of demand measures the: A) responsiveness of quantity demanded to a change in price. B) responsiveness of price to a change in quantity C) extent to which prices are flexible and respond to market forces. D) responsiveness of demand when price is held constant and demand increases or decreases. Economics 1201 Spring 2019 Homework 11 - Due May 1, 2019

Answer 1

Part 1) The strategy of reducing or eliminating risks by taking a small share in many independent events or by taking advantage of the predictability associated with large numbers of independent events is known as pooling.

Part 2) A life insurance company will often require an applicant to submit to a brief physical exam to assess the person’s basic level of health. This practice is a form of screening to lessen the problem of adverse selection.

Part 3) Moral hazard occurs when individuals know more about their actions than other people do.

Part 4) The price elasticity of demand measures the responsiveness of quantity demanded to a change in price.