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Before taking part in the discussion, read iSG Study Unit 5, and, where appropriate, read Chapter 22 of Mankiw, Quah & Wilson (2021), and/or Chapter
Before taking part in the discussion, read iSG Study Unit 5, and, where appropriate, read Chapter 22 of Mankiw, Quah & Wilson (2021), and/or Chapter 11 of Png (2022). Scenarios Tom is an insurance agent selling medical insurance. He would like to sell insurance packages to customers who are less likely to claim compensations after purchasing insurances from him. But he cannot be sure whether applicants who intend to buy his insurance packages have negative medical conditions. In Study Unit 5, we studied several different causes of market failure, such as public goods, externalities, and information asymmetry. For one (1) of the above scenarios, discuss the following three (3) questions: 1. Holding all other factors constant, apply relevant economic theories and discuss whether the market in the scenario is efficient. 2. If you believe there will be market failures in the scenario, identify the key cause of market inefficiency and the type of market failure. Be specific about your answer. For example, you need to be specific about what kind of externalities (e.g., positive or negative externality; production or consumption externality) or what types of information issues (e.g., adverse selection, moral hazard, or principal-agency problem) are involved or related to
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