1.. Asymmetric information and imperfect information tend to distort market price and quantity. The use of a money-back guarantee might work to

Group of answer choices

• Stabilize the price and quantity of the product.
• Enhance the promise of quality and reduce distortion of the market price and quantity.
• Motivate buyers to intentionally abuse products so that they can get their money back, reducing the impact of distorted market price and quantity.
• Encourage buyers to worry about why such a guarantee was necessary, increasing the distortion of market price and quantity.

2. How does insurance work?

Group of answer choices

• Customers pay premiums to the insurance company based on their honest answers to a series of questions about their health and habits. The company holds that money to pay claims throughout the year. If any customer is found to have lied on their questions, the company charges them a large penalty.
• Households or firms pay a premium, which is based on how the insurance company calculated the probability of a certain event occurring to a pool of people. If that event occurs, insured members who suffered receive money from this pool of money.
• Customers pay premiums with rates based on their income. The firm holds that money throughout the year and distributes funds according to need at the end of the fiscal year.
• The insurance company collects premiums for all adults based on the probability of each person having a claim of a certain sort during a calendar year. The firm holds that money to pay claims throughout the year. Any money left over goes to the firm as profits.

3. An example of a government run insurance program is

Group of answer choices

• Unemployment insurance
• The Sherman Act
• The EPA Clean Water Act
• The SNAP program

4. If you have health insurance that covers the cost of visiting the doctor, you may be less likely to take precautions against catching an illness that might require a doctor's visit. This is called what?

Group of answer choices

• Adverse selection
• Price control
• Moral hazard
• Irrational behavior

5. What is one impact of government regulation of insurance?

Group of answer choices

• The insurance industry has moved closer to a perfectly competitive market structure.
• Fewer people have insurance coverage than if it was provided only by the market.
• The total cost of insurance in America has gone down.
• Certain groups can receive insurance, even though the private market would not otherwise provide that insurance.

6. Insurance buyers have more information about whether they are high-risk or low-risk than the insurance company does. This creates an asymmetric information problem for the insurance company because buyers who are high-risk tend to want to buy more insurance, without letting the insurance company know about their higher risk. How might this problem impact an insurance company?

Group of answer choices

• The insurance buyers, not the company, will be impacted. As high risk buyers submit claims, they will use up the company's funds for that year, and since the company did not adjust for these high risk claims, once that money is used up, remaining claimants won't receive any coverage.
• The insurance company may decide not to sell insurance in this market at all or otherwise choose not to sell insurance to those they can identify as high risk.
• The company will not be impacted.
• The company will be faced with heavy losses.