Principles of economic economic and the economy by tim taylo

Principles of economic: economic and the economy by tim taylor (3rd ed)

Chapter 18

1.why might it be difficult for a buyer and seller to agree on a price when imperfect information exists?

3. What are some of the ways a seller of goods might reassure a possible buyer who is faced with imperfect information?

5.what are some of the ways that someone looking for a loan might reassure a bank that is faced with imperfect information about whether the loan will be repaid?

7.In an insurance system, would you expect each person to receive in benefits pretty much what they pay premiums? or it it just that the average benefits paid will equal the average premiums paid?

9. What is the problem of moral hazard?

11. Define deductibles, copayments, and coinsurance.

13. What is the key difference between a fee-for-service health care system and a system based on health maintenance organizations?

15.How might adverse selection make it difficult for an insurance market to operate?

Solution

Q1. It might be difficult for a buyer and seller to agree on a price when imperfect information exists because presence of imperfect information results in lack of necessary information being available to buyers and sellers to make informed choices. When buyers and sellers made informed choice which is based on full and perfect information that the market reaches the equilibrium which means buyers and sellers simultaneoulsy agrees on one price.

Imperfect information by stopping the informed choices being made by the buyers and sellers refrains the market from reaching equilibrium and thereby making it difficult for buyers and sellers to agree on a price.

Secondly, imperfect information give rise to inferences or assumptions being drawn by buyers and sellers about quality of product. These assumptions based on imperfect information are generally different for buyers and sellers. This results in buyers and sellers finding it difficult to agree on a price.