1)How does moral hazard affect health insurance?

2)The government provides public goods because

a. private markets are incapable of producing public goods.

b. free-riders make it difficult for private markets to supply the socially optimal quantity.

c. markets are always better off with some government oversight.

d. external benefits will occur to private producers.

1)Moral hazard applies to extra health insurance received when individuals are protected. Insurance charges for protection when individuals are covered. Insurance reduces the cost of treatment to null. If the cost is therefore lowered, buyers demand additional health coverage than they might have done at regular market rates, leads to moral hazard.

2)

• The government provides public goods because (b) free-riders make it difficult for private markets to supply socially optimal quantity.

Free-riders refers to individuals who get to enjoy and use public goods even though they have not contributed to them by paying their taxes. This makes it difficult for private companies to invest in public goods as they will be operating in much losses than profits due to the free-riders. An example of a public good is national security. The government cannot leave such a vital task in the hands of the private sector or privatizing it, hence forcing the government to step up and take responsibility. This is to ensure that the citizens of its nation get the best security services and to ensure law and order is maintained within and without the country's borders.