"When a Third Party (For Example, an Insurance Company or the Government)

question 35

Multiple Choice

"When a third party (for example, an insurance company or the government) pays all or most of the cost of a good or service, the incentive of consumers to shop for the best value per dollar spent and of producers to offer the item at an economical price is substantially reduced." This statement is

• A) essentially true.
• B) false; consumers will still have a strong incentive to search for the most economical price even if someone else is paying the bill.
• C) false; producers will still have a strong incentive to keep prices low even if consumers are non-responsive to price differences among suppliers.
• D) false; the party paying for the good will not influence the incentive of either consumers or producers to economize.