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6) We went over the following graph in class that helps to explain how adverse selection can arise in certain markets. Price Average ____________________________________________ Peqm

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6) We went over the following graph in class that helps to explain how adverse selection can arise in certain markets. Price Average ____________________________________________ Peqm Margina Cost y Quantity Qeqm Qmax a. Is there an area of deadweight loss in the graph above? What characterizes those people Who are not insured? (8 points) b. How would the curves have to look for the adverse selection death spiral to occur? There is no need to draw a graph, a brief explanation is fine. (5 points)

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