REVIEW QUESTIONS
- For each of the following purchases, say whether you would expect the degree of imperfect information to be relatively high or relatively low:
- Buying apples at a roadside stand
- Buying dinner at the neighborhood restaurant around the corner
- Buying a used laptop at a garage sale
- Ordering flowers online for your friend in a different city
- Why is there asymmetric information in the labor market? What signals can an employer look for that might indicate the traits they are seeking in a new employee?
- Why is it difficult to measure health outcomes?
- What are some ways a seller of labor (that is, someone looking for a job) might reassure a possible employer who is faced with imperfect information?
- What are some ways that someone looking for a loan might reassure a bank that is faced with imperfect information about whether the borrower will repay the loan?
- What is an insurance premium?
- How can moral hazard lead to more costly insurance premiums than one was expected?
- Define deductibles, copayments, and coinsurance.
- How can deductibles, copayments, and coinsurance reduce moral hazard?
- What is the key difference between a fee-for-service healthcare 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 economists use to measure health outcomes?