Suppose That Individuals Have Private Information About the Likely Risk

question 19

Multiple Choice

Suppose that individuals have private information about the likely risk of going into a nursing home.This will directly cause:

• A) moral hazard in the market for long-term care insurance.
• B) adverse selection in the market for long-term care insurance.
• C) a reduction in the average cost of long-term care insurance.
• D) increased demand for long-term care insurance by those who are least likely to go into a nursing home.

Explain the characteristics of constant cost industries and their response to changes in demand.

Understand how a firm's short-run supply curve is determined in a competitive price taker market.

Calculate a firm's profit or loss given its marginal cost, average total cost, and selling price.

Analyze the effect of fixed cost changes on a firm's profit-maximizing output level in a competitive market.

---

Definitions:

Consumption

The act of using goods and services to satisfy needs or desires.

Price

The financial valuation expected, obligatory, or handed in exchange for something.

Nonlabor Income

Income received that does not come from working, such as interest from savings, dividends from investments, or government benefits.

Leisure

Free time spent away from work and compulsory activities, often devoted to relaxation, hobbies, and personal enjoyment.