The reason why workers apply for disability benefits from a company.

Question

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Answer 1

Question

Chapter 17, Problem 1P

(a)

To determine

The reason why workers apply for disability benefits from a company.

(a)

Expert Solution

Explanation of Solution

Here, the issue of the imperfect information is given. The workers have more information about themselves, whereas the company paying for their disability does not have more information about the workers applying for the job. This means that the worker can forge a disability certificate with the help of a doctor and the company would provide them with benefits. Thus, the imperfect information causes the problem here.

Economics Concept Introduction

Imperfect information: Imperfect information is a situation where one party of the market has more information about the product or service than the other, which helps the informed one to make benefits over other.

(b)

To determine

The market condition for used computers.

(b)

Expert Solution

Explanation of Solution

The used goods and services market is the main place where the imperfect information plays its role and causes adverse selection issues. This is because the sellers will have more information about the quality of the items and they will sell the lemons (low quality items) for higher price equivalent to the price of cherry (high quality items). Thus, the adverse selection will take place in the market as more low quality items will be sold to consumers.

(c)

To determine

The market condition for customized telephone systems.

(c)

Expert Solution

Explanation of Solution

There will be many providers of the telephone system in the market and many competing bids will be there in the market. Thus, it will be difficult to evaluate amongst them and select the item without being placed in the offices. Thus, the issue of the imperfect information arises. This leads to the issue of identifying which company’s system is good and selecting it.

(d)

To determine

The market condition for automobile collision insurance.

(d)

Expert Solution

Explanation of Solution

The insurance coverage for the automobiles is essential and each and everyone should take the insurance, in order to take their vehicle to the road. Thus, it is mandatory to have insurance. However, the bad drivers will go for a higher insurance coverage as they would cause more frequent collisions. This leads the insurance cost to become higher for the good drivers who care for their vehicle. Thus, this adverse selection also leads to the issue of moral hazard as the insurance diverts the risk of collision from the bad driver to the insurance company; thus, makes the bad drivers to become worse.

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Answer 2

Question

Chapter 17, Problem 1P

(a)

To determine

The reason why workers apply for disability benefits from a company.

(a)

Expert Solution

Explanation of Solution

Here, the issue of the imperfect information is given. The workers have more information about themselves, whereas the company paying for their disability does not have more information about the workers applying for the job. This means that the worker can forge a disability certificate with the help of a doctor and the company would provide them with benefits. Thus, the imperfect information causes the problem here.

Economics Concept Introduction

Imperfect information: Imperfect information is a situation where one party of the market has more information about the product or service than the other, which helps the informed one to make benefits over other.

(b)

To determine

The market condition for used computers.

(b)

Expert Solution

Explanation of Solution

The used goods and services market is the main place where the imperfect information plays its role and causes adverse selection issues. This is because the sellers will have more information about the quality of the items and they will sell the lemons (low quality items) for higher price equivalent to the price of cherry (high quality items). Thus, the adverse selection will take place in the market as more low quality items will be sold to consumers.

(c)

To determine

The market condition for customized telephone systems.

(c)

Expert Solution

Explanation of Solution

There will be many providers of the telephone system in the market and many competing bids will be there in the market. Thus, it will be difficult to evaluate amongst them and select the item without being placed in the offices. Thus, the issue of the imperfect information arises. This leads to the issue of identifying which company’s system is good and selecting it.

(d)

To determine

The market condition for automobile collision insurance.

(d)

Expert Solution

Explanation of Solution

The insurance coverage for the automobiles is essential and each and everyone should take the insurance, in order to take their vehicle to the road. Thus, it is mandatory to have insurance. However, the bad drivers will go for a higher insurance coverage as they would cause more frequent collisions. This leads the insurance cost to become higher for the good drivers who care for their vehicle. Thus, this adverse selection also leads to the issue of moral hazard as the insurance diverts the risk of collision from the bad driver to the insurance company; thus, makes the bad drivers to become worse.

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Answer 3

Question

Chapter 17, Problem 1P

(a)

To determine

The reason why workers apply for disability benefits from a company.

(a)

Expert Solution

Explanation of Solution

Here, the issue of the imperfect information is given. The workers have more information about themselves, whereas the company paying for their disability does not have more information about the workers applying for the job. This means that the worker can forge a disability certificate with the help of a doctor and the company would provide them with benefits. Thus, the imperfect information causes the problem here.

Economics Concept Introduction

Imperfect information: Imperfect information is a situation where one party of the market has more information about the product or service than the other, which helps the informed one to make benefits over other.

(b)

To determine

The market condition for used computers.

(b)

Expert Solution

Explanation of Solution

The used goods and services market is the main place where the imperfect information plays its role and causes adverse selection issues. This is because the sellers will have more information about the quality of the items and they will sell the lemons (low quality items) for higher price equivalent to the price of cherry (high quality items). Thus, the adverse selection will take place in the market as more low quality items will be sold to consumers.

(c)

To determine

The market condition for customized telephone systems.

(c)

Expert Solution

Explanation of Solution

There will be many providers of the telephone system in the market and many competing bids will be there in the market. Thus, it will be difficult to evaluate amongst them and select the item without being placed in the offices. Thus, the issue of the imperfect information arises. This leads to the issue of identifying which company’s system is good and selecting it.

(d)

To determine

The market condition for automobile collision insurance.

(d)

Expert Solution

Explanation of Solution

The insurance coverage for the automobiles is essential and each and everyone should take the insurance, in order to take their vehicle to the road. Thus, it is mandatory to have insurance. However, the bad drivers will go for a higher insurance coverage as they would cause more frequent collisions. This leads the insurance cost to become higher for the good drivers who care for their vehicle. Thus, this adverse selection also leads to the issue of moral hazard as the insurance diverts the risk of collision from the bad driver to the insurance company; thus, makes the bad drivers to become worse.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 17, Problem 1P

(a)

To determine

The reason why workers apply for disability benefits from a company.

(a)

Expert Solution

Explanation of Solution

Here, the issue of the imperfect information is given. The workers have more information about themselves, whereas the company paying for their disability does not have more information about the workers applying for the job. This means that the worker can forge a disability certificate with the help of a doctor and the company would provide them with benefits. Thus, the imperfect information causes the problem here.

Economics Concept Introduction

Imperfect information: Imperfect information is a situation where one party of the market has more information about the product or service than the other, which helps the informed one to make benefits over other.

(b)

To determine

The market condition for used computers.

(b)

Expert Solution

Explanation of Solution

The used goods and services market is the main place where the imperfect information plays its role and causes adverse selection issues. This is because the sellers will have more information about the quality of the items and they will sell the lemons (low quality items) for higher price equivalent to the price of cherry (high quality items). Thus, the adverse selection will take place in the market as more low quality items will be sold to consumers.

(c)

To determine

The market condition for customized telephone systems.

(c)

Expert Solution

Explanation of Solution

There will be many providers of the telephone system in the market and many competing bids will be there in the market. Thus, it will be difficult to evaluate amongst them and select the item without being placed in the offices. Thus, the issue of the imperfect information arises. This leads to the issue of identifying which company’s system is good and selecting it.

(d)

To determine

The market condition for automobile collision insurance.

(d)

Expert Solution

Explanation of Solution

The insurance coverage for the automobiles is essential and each and everyone should take the insurance, in order to take their vehicle to the road. Thus, it is mandatory to have insurance. However, the bad drivers will go for a higher insurance coverage as they would cause more frequent collisions. This leads the insurance cost to become higher for the good drivers who care for their vehicle. Thus, this adverse selection also leads to the issue of moral hazard as the insurance diverts the risk of collision from the bad driver to the insurance company; thus, makes the bad drivers to become worse.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 17, Problem 1P

(a)

To determine

The reason why workers apply for disability benefits from a company.

(a)

Expert Solution

Explanation of Solution

Here, the issue of the imperfect information is given. The workers have more information about themselves, whereas the company paying for their disability does not have more information about the workers applying for the job. This means that the worker can forge a disability certificate with the help of a doctor and the company would provide them with benefits. Thus, the imperfect information causes the problem here.

Economics Concept Introduction

Imperfect information: Imperfect information is a situation where one party of the market has more information about the product or service than the other, which helps the informed one to make benefits over other.

(b)

To determine

The market condition for used computers.

(b)

Expert Solution

Explanation of Solution

The used goods and services market is the main place where the imperfect information plays its role and causes adverse selection issues. This is because the sellers will have more information about the quality of the items and they will sell the lemons (low quality items) for higher price equivalent to the price of cherry (high quality items). Thus, the adverse selection will take place in the market as more low quality items will be sold to consumers.

(c)

To determine

The market condition for customized telephone systems.

(c)

Expert Solution

Explanation of Solution

There will be many providers of the telephone system in the market and many competing bids will be there in the market. Thus, it will be difficult to evaluate amongst them and select the item without being placed in the offices. Thus, the issue of the imperfect information arises. This leads to the issue of identifying which company’s system is good and selecting it.

(d)

To determine

The market condition for automobile collision insurance.

(d)

Expert Solution

Explanation of Solution

The insurance coverage for the automobiles is essential and each and everyone should take the insurance, in order to take their vehicle to the road. Thus, it is mandatory to have insurance. However, the bad drivers will go for a higher insurance coverage as they would cause more frequent collisions. This leads the insurance cost to become higher for the good drivers who care for their vehicle. Thus, this adverse selection also leads to the issue of moral hazard as the insurance diverts the risk of collision from the bad driver to the insurance company; thus, makes the bad drivers to become worse.

Answer 6

Chapter 17, Problem 1P

(a)

To determine

The reason why workers apply for disability benefits from a company.

(a)

Expert Solution

Explanation of Solution

Here, the issue of the imperfect information is given. The workers have more information about themselves, whereas the company paying for their disability does not have more information about the workers applying for the job. This means that the worker can forge a disability certificate with the help of a doctor and the company would provide them with benefits. Thus, the imperfect information causes the problem here.

Economics Concept Introduction

Imperfect information: Imperfect information is a situation where one party of the market has more information about the product or service than the other, which helps the informed one to make benefits over other.

Answer 7

Chapter 17, Problem 1P

(a)

To determine

The reason why workers apply for disability benefits from a company.

Answer 8

(a)

Expert Solution

Explanation of Solution

Here, the issue of the imperfect information is given. The workers have more information about themselves, whereas the company paying for their disability does not have more information about the workers applying for the job. This means that the worker can forge a disability certificate with the help of a doctor and the company would provide them with benefits. Thus, the imperfect information causes the problem here.

Answer 9

(a)

Expert Solution

Answer 10

(a)

Expert Solution

Answer 11

Expert Solution

Answer 12

Economics Concept Introduction

Imperfect information: Imperfect information is a situation where one party of the market has more information about the product or service than the other, which helps the informed one to make benefits over other.

Answer 13

(b)

To determine

The market condition for used computers.

(b)

Expert Solution

Explanation of Solution

The used goods and services market is the main place where the imperfect information plays its role and causes adverse selection issues. This is because the sellers will have more information about the quality of the items and they will sell the lemons (low quality items) for higher price equivalent to the price of cherry (high quality items). Thus, the adverse selection will take place in the market as more low quality items will be sold to consumers.

Answer 14

(b)

To determine

The market condition for used computers.

Answer 15

(b)

Expert Solution

Explanation of Solution

The used goods and services market is the main place where the imperfect information plays its role and causes adverse selection issues. This is because the sellers will have more information about the quality of the items and they will sell the lemons (low quality items) for higher price equivalent to the price of cherry (high quality items). Thus, the adverse selection will take place in the market as more low quality items will be sold to consumers.

Answer 16

(b)

Expert Solution

Answer 17

(b)

Expert Solution

Answer 18

Expert Solution

Answer 19

(c)

To determine

The market condition for customized telephone systems.

(c)

Expert Solution

Explanation of Solution

There will be many providers of the telephone system in the market and many competing bids will be there in the market. Thus, it will be difficult to evaluate amongst them and select the item without being placed in the offices. Thus, the issue of the imperfect information arises. This leads to the issue of identifying which company’s system is good and selecting it.

Answer 20

(c)

To determine

The market condition for customized telephone systems.

Answer 21

(c)

Expert Solution

Explanation of Solution

There will be many providers of the telephone system in the market and many competing bids will be there in the market. Thus, it will be difficult to evaluate amongst them and select the item without being placed in the offices. Thus, the issue of the imperfect information arises. This leads to the issue of identifying which company’s system is good and selecting it.

Answer 22

(c)

Expert Solution

Answer 23

(c)

Expert Solution

Answer 24

Expert Solution

Answer 25

(d)

To determine

The market condition for automobile collision insurance.

(d)

Expert Solution

Explanation of Solution

The insurance coverage for the automobiles is essential and each and everyone should take the insurance, in order to take their vehicle to the road. Thus, it is mandatory to have insurance. However, the bad drivers will go for a higher insurance coverage as they would cause more frequent collisions. This leads the insurance cost to become higher for the good drivers who care for their vehicle. Thus, this adverse selection also leads to the issue of moral hazard as the insurance diverts the risk of collision from the bad driver to the insurance company; thus, makes the bad drivers to become worse.

Answer 26

(d)

To determine

The market condition for automobile collision insurance.

Answer 27

(d)

Expert Solution

Explanation of Solution

The insurance coverage for the automobiles is essential and each and everyone should take the insurance, in order to take their vehicle to the road. Thus, it is mandatory to have insurance. However, the bad drivers will go for a higher insurance coverage as they would cause more frequent collisions. This leads the insurance cost to become higher for the good drivers who care for their vehicle. Thus, this adverse selection also leads to the issue of moral hazard as the insurance diverts the risk of collision from the bad driver to the insurance company; thus, makes the bad drivers to become worse.