Exam 12: Markets with Private Information

Consider a market for used cars.Suppose there are only two kinds of cars: lemons and good cars.A lemon is worth $1,500 both to its current owner and to anyone who buys it.A good car is worth $6,000 to its current and potential owners.Buyers can't tell whether a car is a lemon until after they have bought the car.What do economists call the problem that buyers of used cars face? What is the price of a used car? Explain and substantiate your answer.

In the used car market with warranties,the market for lemons (poor quality used cars)is ________ and the market for good cars is ________.

In an insurance market,moral hazard exists chiefly because of

Used car buyers believe a car is good quality when the seller signals the car's quality by offering a warranty because

In a pooling equilibrium,aggressive drivers pay a premium of ________ and safe drivers pay a premium of ________.

In the auto insurance market,who is most likely to have private information that leads to adverse selection?

Dan,age 19,may have trouble buying auto insurance at a low price because insurance companies

Adverse selection is the tendency for people who accept contracts to be those who

Moral hazard typically occurs because

________ occurs when an informed person takes an action to send information to an uninformed person,and ________ occurs when an uninformed person creates an incentive for an informed person to reveal private information.

What is the private information in the market for health-care insurance? What is the private information in the market for health care?

Without warranties,used car buyers can assume that all used cars are "lemons" because of

How can a warranty at the seller's expense signal that a product is high quality?

In the market for automobile insurance,adverse selection implies that

The used car market without warranties suffers from

Moral hazard in the market for health-care services leads

One of the ways the market for used cars copes with the problems associated with private information is through the offering of

In the used car market,adverse selection is a problem primarily when

If you have private information that you are a riskier driver than your record indicates,you are likely to buy an insurance policy that has a ________ deductible and a ________ premium.

The lemons problem is caused by