question archive 1)Inefficient outcomes can arise in markets for public goods because: a
1)Inefficient outcomes can arise in markets for public goods because: a
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1)Inefficient outcomes can arise in markets for public goods because:
a. too much of an exclusive good is produced.
b. too little of a nonexclusive good is produced.
c. too much of a nonexclusive good is produced.
d. too little of an exclusive good is produced.
2)Which of the following statements is correct about the term "adverse selection"?
a. "Adverse selection" is the tendency of people with characteristics undesirable to sellers to buy a good or service from those sellers,
b. "Adverse selection" is the tendency of people to change their behavior in undesirable ways after they have purchased insurance,
c. "Adverse selection" is the tendency of people outside of flood plains to buy flood insurance,
d. "Adverse selection" is the tendency of people to buy products that have negative values.
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1)The answer is b.
The inefficient outcomes of public goods could be claimed for too much consumption by free-riders, which the demand for use of public goods is over its initial design while the cost of producing public goods is not fully recovered since free-riders do not want to pay for public goods. Then, the market would fail in providing the public goods when it cannot solve the problem of free-riders.
2)The answer is a).
Adverse selection is a type of problem that occurs due to asymmetric information before the commencement of transaction. This problem arises because one party has characteristics that are unobservable to the other party, but such characteristics affect (adversely) the outcome of the transaction. For exampl, people with pre-existing health conditions (which makes insurance payout more likely) are precisely the ones who are looking aggresively for insurance.
