1. Which situation provides the potential for the largest social loss due to insurance?
a. large price distortion and inelastic demand curve
b. small price distortion and elastic demand curve
c. small price distortion and inelastic demand curve
d. large price distortion and elastic demand curve
e. none of the above
2. If a moral hazard exists, the probability of getting sick will __________ and the level of utility available in equilibrium will be ________.
a. decrease; higher
b. stay the same; lower
c. decrease; lower
d. increase; lower
e. increase; higher
3. For a given medical procedure, the no insurance out of pocket price = Pu.
The insured out of pocket price = Pi
Both Elizabeth and Phillip are consumers of this procedure and face the same levels of Pu and Pi.
The only difference is that Elizabeth's elasticity of demand for this service = - 1.3 while Phillip's elasticity of demand = - 0.4.
Who creates greater social loss?
a. Elizabeth
b. Phillips
c. both create identical social losses
d. none of the above
1. Which situation provides the potential for the largest social loss due to insurance?
a. large price distortion and inelastic demand curve
b. small price distortion and elastic demand curve
c. small price distortion and inelastic demand curve
d. large price distortion and elastic demand curve
e. none of the above
2. If a moral hazard exists, the probability of getting sick will __________ and the level of utility available in equilibrium will be ________.
a. decrease; higher
b. stay the same; lower
c. decrease; lower
d. increase; lower
e. increase; higher
3. For a given medical procedure, the no insurance out of pocket price = Pu.
The insured out of pocket price = Pi
Both Elizabeth and Phillip are consumers of this procedure and face the same levels of Pu and Pi.
The only difference is that Elizabeth's elasticity of demand for this service = - 1.3 while Phillip's elasticity of demand = - 0.4.
Who creates greater social loss?
a. Elizabeth
b. Phillips
c. both create identical social losses
d. none of the above
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