Use the Figure Below to Answer the Following Questions

question 26

Multiple Choice

Use the figure below to answer the following questions.

Figure 16.3.3
-Refer to Figure 16.3.3. The figure shows the marginal private benefit and marginal social cost of a university education. Society's external benefit from university graduates is $10,000 each. With no subsidy,

• A)no students go to university.
• B)less than 10 million students go to university.
• C)10 million students go to university.
• D)more than 10 million students go to university.
• E)the market is efficient.

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Definitions:

Moral Hazard

A situation in insurance and contracts where one party takes more risks because they know they are protected or that another party bears the costs of those risks.

Adverse Selection

A situation in financial markets where buyers and sellers have different levels of information, leading to transactions that favor the party with more or better information.

Adverse Selection

A situation where asymmetric information leads to the selection of poor risks, often seen in insurance markets.

Pre-contractual Problem

Issues that arise before the formation of a contract, often relating to the disclosure of information or negotiation terms.