Despite the Warning on a Package of Cigarettes About the Potential

question 162

Multiple Choice

Despite the warning on a package of cigarettes about the potential health hazards of smoking, a man lights up a cigarette. What would an economist conclude?

• A) In the man's judgment, the expected marginal benefit of smoking the cigarette outweighs the expected marginal cost.
• B) In the man's judgment, the expected marginal cost of smoking the cigarette outweighs the expected marginal benefit.
• C) The man is behaving irrationally.
• D) The man has a positive marginal benefit.

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Definitions:

Premium

The amount paid for an insurance policy or an additional cost for receiving better service or goods.

Adverse Selection

A situation in which one party in a transaction has more information than the other, often leading to an unfavorable selection process.

Screening

The process of evaluating or testing something or someone to determine if certain criteria or standards are met, often used for selection purposes.

Signaling

The process by which one party conveys some meaningful information about itself to another party, often seen in contexts like job markets and education.