Question

1. ​In the market for insurance, the adverse selection problem leads

A. ​those most likely to collect on insurance to buy it.

B. ​those who buy insurance to take fewer precautions to avoid the insured risk.

C, ​those with less insurance to take on more risk.

D. ​to none of the above.

2. A profit-maximizing, competitive firm for which the marginal product of labor is diminishing also experiences

A. a perfectly inelastic supply of labor.

B. a perfectly elastic supply of labor.

C. a downward-sloping demand for labor.

D. an upward-sloping demand for labor.

3. If a worker responds to an increase in the opportunity cost of leisure by taking less leisure, then his labor supply curve is

A. horizontal.

B. vertical.

C. backward sloping.

D. upward sloping.

Answer 1

1. In the market for insurance , the adverse selection problem leads those most likely to collect on insurance to buy it. Because adverse selection occur when those most likely to get insurance payoffs are the ones who want to purchase the insurance the most.Hence, option(A) is correct.

2. A profit maximizing competitive firm for which the marginal product of labor is diminishing also experiences a perfectly inelastic supply of labor. Hence, option(A) is correct.

3. If a worker responds to an increase in the opportunity cost of leisure by taking less leisure , then his labor supply curve is upward sloping. Hence, option(D) is correct.