Question 1

Which of the following provides insurance against job loss?

Accepted Answer

A)  disability insurance 
B)  workers' compensation 
C)  Medicare 
D)  unemployment insurance 
A)  disability insurance 
B)  workers' compensation 
C)  Medicare 
D)  unemployment insurance D

Question 2

Which of the following provides insurance against on-the-job accidents?

Accepted Answer

A)  disability insurance 
B)  workers' compensation 
C)  Medicare 
D)  unemployment insurance 
A)  disability insurance 
B)  workers' compensation 
C)  Medicare 
D)  unemployment insurance B

Question 3

Lee is a rational consumer with complete health insurance (no copayments or deductibles).He will use medical care up to the point at which his:

Accepted Answer

A)  total benefit is equal to the cost of care paid by the insurance provider. 
B)  marginal benefit is zero. 
C)  marginal benefit is equal to the marginal cost of care paid by the insurance provider. 
D)  total benefit is equal to zero. 
A)  total benefit is equal to the cost of care paid by the insurance provider. 
B)  marginal benefit is zero. 
C)  marginal benefit is equal to the marginal cost of care paid by the insurance provider. 
D)  total benefit is equal to zero. B

Question 4

Which of the following is NOT a reason for government intervention in insurance markets?

Accepted Answer

A)  adverse selection 
B)  positive externalities 
C)  redistribution 
D)  paternalism 
A)  adverse selection 
B)  positive externalities 
C)  redistribution 
D)  paternalism

Question 5

Optimal social insurance systems should partially but not completely insure individuals against adverse events.Explain.

Accepted Answer

Higher social insurance improves social

Question 6

Suppose that among a group of uninsured people,the only ones who want to buy health insurance are the ones who happen to enjoy jumping out of perfectly good airplanes.This is an example of:

Accepted Answer

A)  adverse selection. 
B)  rent seeking. 
C)  moral hazard. 
D)  X-inefficiency. 
A)  adverse selection. 
B)  rent seeking. 
C)  moral hazard. 
D)  X-inefficiency.

Question 7

Which of the following provides insurance against earnings loss due to retirement?

Accepted Answer

A)  disability insurance 
B)  Social Security 
C)  workers' compensation 
D)  Medicare 
A)  disability insurance 
B)  Social Security 
C)  workers' compensation 
D)  Medicare

Question 8

If government subsidizes the health insurance costs of individuals because individuals do not sufficiently realize the importance of having health insurance,which justification for government intervention is being used?

Accepted Answer

A)  high administrative costs 
B)  redistribution 
C)  paternalism 
D)  adverse selection 
A)  high administrative costs 
B)  redistribution 
C)  paternalism 
D)  adverse selection

Question 9

An actuarially fair premium is set equal to the insurer's:

Accepted Answer

A)  expected payout,assuming no administrative costs or profits. 
B)  expected administrative costs,assuming maximum profits. 
C)  desired amount of profit. 
D)  total costs. 
A)  expected payout,assuming no administrative costs or profits. 
B)  expected administrative costs,assuming maximum profits. 
C)  desired amount of profit. 
D)  total costs.

Question 10

By 2011,about _____ cents of each dollar of federal spending was used for national defense and about _____ cents of each dollar was paid for Social Security.

Accepted Answer

A)  5; 20 
B)  15; 25 
C)  20; 20 
D)  10; 50 
A)  5; 20 
B)  15; 25 
C)  20; 20 
D)  10; 50

Question 11

Suppose that you're selling life insurance,and a 40-year-old male nonsmoker asks you for a price on a $1 million policy for the next 10 years.Your coworker suggests that the rate should be based on the death rates of male nonsmokers in their 40s in the general population.What do you say?

Accepted Answer

Your coworker is forgetting about the pr

Question 12

Paula earns $40,000 per year and rides her bicycle to work.There is a 1% chance that she will break her leg in the next year and a 99% chance that she won't be hurt at all.Medical bills for a broken leg are estimated at $4,000.If Paula buys full health insurance at an actuarially fair premium,what is the premium she will pay for the next year?

Accepted Answer

A)  $4 
B)  $40 
C)  $400 
D)  $4,000 
A)  $4 
B)  $40 
C)  $400 
D)  $4,000

Question 13

If a person has imperfect or partial self-insurance against job loss,they are likely to:

Accepted Answer

A)  allow consumption to fall to zero in the event of a job loss. 
B)  maintain constant consumption in the event of a job loss. 
C)  smooth consumption fully. 
D)  smooth consumption to some extent,but not fully 
A)  allow consumption to fall to zero in the event of a job loss. 
B)  maintain constant consumption in the event of a job loss. 
C)  smooth consumption fully. 
D)  smooth consumption to some extent,but not fully

Question 14

Suppose you go from being uninsured to buying a health insurance policy.You respond by jumping out of a perfectly good airplane for the first time-attached to a parachute,of course.This behavior is best characterized as:

Accepted Answer

A)  adverse selection. 
B)  means testing. 
C)  moral hazard. 
D)  X-inefficiency. 
A)  adverse selection. 
B)  means testing. 
C)  moral hazard. 
D)  X-inefficiency.

Question 15

Administrative costs for private insurance average about _____% of claims paid,while the administrative costs of Medicare average about _____ of claims paid.

Accepted Answer

A)  10%; 10% 
B)  2%; 20% 
C)  15%; 1.5% 
D) 1)%5; 15% 
A)  10%; 10% 
B)  2%; 20% 
C)  15%; 1.5% 
D) 1)%5; 15%

Question 16

Is self-insurance more likely to be chosen by rich or by poor people? Explain why.

Accepted Answer

In general,one would expect that wealthy

Question 17

Which of the following best describes risk aversion?

Accepted Answer

A)  insurance premiums set equal to the insurer's expected payout 
B)  adverse actions taken by individuals or producers in response to insurance against adverse outcomes 
C)  the fact that insured individuals know more about their risk level than does the insurer 
D)  the extent to which individuals are more impacted by a negative change in income than by a positive change in income of the same magnitude 
A)  insurance premiums set equal to the insurer's expected payout 
B)  adverse actions taken by individuals or producers in response to insurance against adverse outcomes 
C)  the fact that insured individuals know more about their risk level than does the insurer 
D)  the extent to which individuals are more impacted by a negative change in income than by a positive change in income of the same magnitude

Question 18

Is moral hazard likely to be a bigger problem in the health insurance market or the life insurance market? Explain.

Accepted Answer

Since the primary cost of death is death

Question 19

People buying insurance aim to shift consumption from periods when consumption is ___________ to periods when consumption is ___________ and marginal utility is relatively ___________.

Accepted Answer

A)  high; low; low 
B)  high; low; high 
C)  low; high; high 
D)  low; high; low 
A)  high; low; low 
B)  high; low; high 
C)  low; high; high 
D)  low; high; low

Question 20

You lower the deductible on your car insurance and start driving like Michael Schumacher (a retired Formula One race car driver).This is an example of:

Accepted Answer

A)  adverse selection. 
B)  rent seeking. 
C)  moral hazard. 
D)  X-inefficiency. 
A)  adverse selection. 
B)  rent seeking. 
C)  moral hazard. 
D)  X-inefficiency.

Exam 12: Social Insurance- the New Function of Government

Which of the following provides insurance against job loss?

Which of the following provides insurance against on-the-job accidents?

Lee is a rational consumer with complete health insurance (no copayments or deductibles).He will use medical care up to the point at which his:

Which of the following is NOT a reason for government intervention in insurance markets?

Optimal social insurance systems should partially but not completely insure individuals against adverse events.Explain.

Suppose that among a group of uninsured people,the only ones who want to buy health insurance are the ones who happen to enjoy jumping out of perfectly good airplanes.This is an example of:

Which of the following provides insurance against earnings loss due to retirement?

If government subsidizes the health insurance costs of individuals because individuals do not sufficiently realize the importance of having health insurance,which justification for government intervention is being used?

An actuarially fair premium is set equal to the insurer's:

By 2011,about _____ cents of each dollar of federal spending was used for national defense and about _____ cents of each dollar was paid for Social Security.

Suppose that you're selling life insurance,and a 40-year-old male nonsmoker asks you for a price on a $1 million policy for the next 10 years.Your coworker suggests that the rate should be based on the death rates of male nonsmokers in their 40s in the general population.What do you say?

If a person has imperfect or partial self-insurance against job loss,they are likely to:

Suppose you go from being uninsured to buying a health insurance policy.You respond by jumping out of a perfectly good airplane for the first time-attached to a parachute,of course.This behavior is best characterized as:

Administrative costs for private insurance average about _____% of claims paid,while the administrative costs of Medicare average about _____ of claims paid.

Is self-insurance more likely to be chosen by rich or by poor people? Explain why.

Which of the following best describes risk aversion?

Is moral hazard likely to be a bigger problem in the health insurance market or the life insurance market? Explain.

People buying insurance aim to shift consumption from periods when consumption is ___________ to periods when consumption is ___________ and marginal utility is relatively ___________.

You lower the deductible on your car insurance and start driving like Michael Schumacher (a retired Formula One race car driver).This is an example of:

Why Study Public Finance

Theoretical Tools of Public Finance

Empirical Tools of Public Finance

Budget Analysis and Deficit Financing

Externalities- Problems and Solutions

Externalities in Action- Environmental and Health Externalities

Public Goods

Cost-Benefit Analysis

Political Economy

State and Local Government Expenditures

Education

Social Security

Unemployment Insurance, disability Insurance, and Workers Compensation

Health Insurance I- Health Economics and Private Health Insurance

Health Insurance Ii- Medicare, medicaid, and Health Care Reform

Income Distribution and Welfare Programs

Taxation- How It Works and What It Means

The Equity Implications of Taxation- Tax Incidence

Taxes on Labor Supply

Taxes on Savings

Taxes on Risk Taking and Wealth

Taxation of Business Income

Fundamental Tax Reform and Consumption Tax

Filters

By 2011,about _ cents of each dollar of federal spending was used for national defense and about _ cents of each dollar was paid for Social Security.

Administrative costs for private insurance average about _% of claims paid,while the administrative costs of Medicare average about _ of claims paid.

People buying insurance aim to shift consumption from periods when consumption is _____ to periods when consumption is _ and marginal utility is relatively _______.