Kenneth Arrow Discussed Two Important Situations in Which Profit Maximization

question 19

Multiple Choice

Kenneth Arrow discussed two important situations in which profit maximization can be socially inefficient. One of these occurs when

• A) there is an imbalance of knowledge between buyer and seller.
• B) business would be an "inept custodian" of public values.
• C) firms are unwilling or simply refuse to maximize profits.
• D) corporate culture promotes dysfunctional social relations.

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Definitions:

Insurance Companies

Financial institutions that provide coverage against specified losses in exchange for premium payments.

Deductibles

The amount policyholders must pay out of pocket before an insurance company will cover the remaining costs of a claim.

Moral Hazard

The situation where one party is more likely to take risks because they do not bear the full consequences of their actions, often occurring in insurance and finance.

Health Insurance

A form of insurance coverage that pays for medical and surgical expenses incurred by the insured or provides reimbursement for such expenses.