Question 1

If you do not qualify for a federal insurance program because your income or wealth is too high,that program is characterized by:

Accepted Answer

A)  adverse selection. 
B)  means testing. 
C)  moral hazard. 
D)  experience rating. 
A)  adverse selection. 
B)  means testing. 
C)  moral hazard. 
D)  experience rating.

Question 2

Which of the following is NOT true about the change in government spending over the past 50 years?

Accepted Answer

A)  The share of defense spending has decreased significantly. 
B)  Spending on health and social security spending has increased dramatically. 
C)  After adjusting for inflation,government spending has remained constant. 
D)  The share of health care spending increased more than the spending in social security and income security. 
A)  The share of defense spending has decreased significantly. 
B)  Spending on health and social security spending has increased dramatically. 
C)  After adjusting for inflation,government spending has remained constant. 
D)  The share of health care spending increased more than the spending in social security and income security.

Question 3

Suppose you go to buy a life insurance policy and the underwriter asks you to allow the company access to all of your medical records.What is the underwriter concerned about?

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 4

Suppose you foresee two possibilities for your health: You will either get a brain tumor or will have nothing more than a bout with the flu.These two possibilities are called:

Accepted Answer

A)  moral hazards. 
B)  self-insurance. 
C)  consumption. 
D)  states of the world. 
A)  moral hazards. 
B)  self-insurance. 
C)  consumption. 
D)  states of the world.

Question 5

Individuals value insurance because they would ideally like to:

Accepted Answer

A)  have more consumption when an adverse event like unemployment or illness befalls them. 
B)  have less consumption when an adverse event like unemployment or illness befalls them. 
C)  have the same consumption regardless of whether an adverse event like unemployment or illness befalls them. 
D)  not have an adverse event like unemployment or illness befall them. 
A)  have more consumption when an adverse event like unemployment or illness befalls them. 
B)  have less consumption when an adverse event like unemployment or illness befalls them. 
C)  have the same consumption regardless of whether an adverse event like unemployment or illness befalls them. 
D)  not have an adverse event like unemployment or illness befall them.

Question 6

Suppose you and your immediate relatives agree to support one another in the event one of you loses your job.This is an example of:

Accepted Answer

A)  disability insurance. 
B)  workers' compensation. 
C)  self-insurance. 
D)  unemployment insurance. 
A)  disability insurance. 
B)  workers' compensation. 
C)  self-insurance. 
D)  unemployment insurance.

Question 7

Insurance allows individuals to:

Accepted Answer

A)  consume more in every period in the future. 
B)  have steadier consumption in every period in the future. 
C)  shift consumption from bad possible outcomes to good possible outcomes. 
D)  avoid negative outcomes,such as automobile accidents. 
A)  consume more in every period in the future. 
B)  have steadier consumption in every period in the future. 
C)  shift consumption from bad possible outcomes to good possible outcomes. 
D)  avoid negative outcomes,such as automobile accidents.

Question 8

The reasons for government involvement in social insurance include all of the following EXCEPT:

Accepted Answer

A)  a potential adverse selection problem stemming from asymmetric information. 
B)  a potential savings in decision-making and administrative costs. 
C)  the paternalistic belief that some individuals will not engage in necessary planning. 
D)  the adverse effect such involvement has on the distribution of income. 
A)  a potential adverse selection problem stemming from asymmetric information. 
B)  a potential savings in decision-making and administrative costs. 
C)  the paternalistic belief that some individuals will not engage in necessary planning. 
D)  the adverse effect such involvement has on the distribution of income.

Question 9

Maria is a rational consumer with no health insurance.She will use medical care up to the point at which her:

Accepted Answer

A)  total benefit is equal to the cost of medical care. 
B)  marginal benefit is zero. 
C)  marginal benefit is equal to the marginal cost of medical care. 
D)  total benefit is equal to zero. 
A)  total benefit is equal to the cost of medical care. 
B)  marginal benefit is zero. 
C)  marginal benefit is equal to the marginal cost of medical care. 
D)  total benefit is equal to zero.

Question 10

How do the benefits from disability insurance compare with benefits from unemployment insurance? Compare and contrast each with respect to the factors that influence how much social insurance increases consumption smoothing.

Accepted Answer

The first factor is the predictability o

Question 11

A market equilibrium in which all types of individuals buy full insurance even though it is not fairly priced to all individuals is called a _________ equilibrium and occurs when all consumers are ___________.

Accepted Answer

A)  pooling; not averse to risk 
B)  pooling; risk averse 
C)  separating; not averse to risk 
D)  separating; risk averse 
A)  pooling; not averse to risk 
B)  pooling; risk averse 
C)  separating; not averse to risk 
D)  separating; risk averse

Question 12

Asymmetric information between buyers and sellers results in:

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 13

Suppose that there are two regions of a state,one where car theft is high and the other where car theft is very low.The state allows insurance companies to charge different premiums (which include insurance against vehicle theft)based in part on where the driver lives.Suppose the government is considering a policy change that would make it illegal to charge higher premiums to people in the areas of higher car theft.
(a)Assume that all drivers in the state are very risk averse when it comes to insurance against theft and that the insurance firms offer one rate to all drivers in that state.What kind of equilibrium will result? Who,if anyone,will pay a risk premium? Who will be better off,and who will be worse off?
(b)What might happen if the drivers in the areas of low car theft were not very risk averse?

Accepted Answer

(a)A pooling equilibrium would result,in

Question 14

Which program provides insurance to cover medical expenditures for individuals over the age of 65?

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 15

Which term refers to charging a price for insurance that is a function of realized outcomes?

Accepted Answer

A)  actuarial adjustment 
B)  moral hazard rating 
C)  experience rating 
D)  risk adjustment 
A)  actuarial adjustment 
B)  moral hazard rating 
C)  experience rating 
D)  risk adjustment

Question 16

A wide variety of private insurance products exist in the United States,including all of the following EXCEPT:

Accepted Answer

A)  auto insurance. 
B)  life insurance. 
C)  casualty and property. 
D)  Medicare. 
A)  auto insurance. 
B)  life insurance. 
C)  casualty and property. 
D)  Medicare.

Question 17

Under realistic conditions,optimal social insurance systems should:

Accepted Answer

A)  not insure individuals against adverse events. 
B)  partially,but not completely,insure individuals against adverse events. 
C)  completely insure individuals against adverse events. 
D)  prevent adverse events. 
A)  not insure individuals against adverse events. 
B)  partially,but not completely,insure individuals against adverse events. 
C)  completely insure individuals against adverse events. 
D)  prevent adverse events.

Question 18

If the government pays part of the health care costs of citizens determined by the government to be unlucky,which of the following justifications for government intervention is being used?

Accepted Answer

A)  high administrative costs 
B)  redistribution 
C)  paternalism 
D)  externalities 
A)  high administrative costs 
B)  redistribution 
C)  paternalism 
D)  externalities

Question 19

If government intervenes in the market for health insurance in order to address the adverse selection problem and improve efficiency:

Accepted Answer

A)  there will likely be some redistribution from high-risk individuals to low-risk individuals. 
B)  there will likely be some redistribution from low-risk individuals to high-risk individuals. 
C)  everyone will be better off as a result. 
D)  everyone will be worse off as a result. 
A)  there will likely be some redistribution from high-risk individuals to low-risk individuals. 
B)  there will likely be some redistribution from low-risk individuals to high-risk individuals. 
C)  everyone will be better off as a result. 
D)  everyone will be worse off as a result.

Question 20

Consumers aim for ____________ because of ______________.

Accepted Answer

A)  self-insurance; diminishing marginal utility 
B)  consumption smoothing; diminishing marginal utility 
C)  self-insurance; means-tested program benefits 
D)  consumption smoothing; means-tested program benefits 
A)  self-insurance; diminishing marginal utility 
B)  consumption smoothing; diminishing marginal utility 
C)  self-insurance; means-tested program benefits 
D)  consumption smoothing; means-tested program benefits

Exam 12: Social Insurance- the New Function of Government

If you do not qualify for a federal insurance program because your income or wealth is too high,that program is characterized by:

Which of the following is NOT true about the change in government spending over the past 50 years?

Suppose you go to buy a life insurance policy and the underwriter asks you to allow the company access to all of your medical records.What is the underwriter concerned about?

Suppose you foresee two possibilities for your health: You will either get a brain tumor or will have nothing more than a bout with the flu.These two possibilities are called:

Individuals value insurance because they would ideally like to:

Suppose you and your immediate relatives agree to support one another in the event one of you loses your job.This is an example of:

Insurance allows individuals to:

The reasons for government involvement in social insurance include all of the following EXCEPT:

Maria is a rational consumer with no health insurance.She will use medical care up to the point at which her:

How do the benefits from disability insurance compare with benefits from unemployment insurance? Compare and contrast each with respect to the factors that influence how much social insurance increases consumption smoothing.

A market equilibrium in which all types of individuals buy full insurance even though it is not fairly priced to all individuals is called a _________ equilibrium and occurs when all consumers are ___________.

Asymmetric information between buyers and sellers results in:

Which program provides insurance to cover medical expenditures for individuals over the age of 65?

Which term refers to charging a price for insurance that is a function of realized outcomes?

A wide variety of private insurance products exist in the United States,including all of the following EXCEPT:

Under realistic conditions,optimal social insurance systems should:

If the government pays part of the health care costs of citizens determined by the government to be unlucky,which of the following justifications for government intervention is being used?

If government intervenes in the market for health insurance in order to address the adverse selection problem and improve efficiency:

Consumers aim for ____________ because 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

A market equilibrium in which all types of individuals buy full insurance even though it is not fairly priced to all individuals is called a _ equilibrium and occurs when all consumers are ___.

Consumers aim for because of __.