A large oligopolistic firm that unilaterally makes changes in price which competitors tend to follow is known as a:
a. price leader.
b. price maker.
c. dominant strategy firm.
d. cartel leader.
QUESTION 2An insurer requiring a policyholder with a collision claim to submit more than one estimate of the repair costs is using a deductible to reduce morally hazardous behavior.
Indicate whether the statement is true or false
QUESTION 3Externalities occur when there is a lack of
A) free-riding.
B) well-defined property rights.
C) market participants.
D) government regulation.
QUESTION 4For a time, either R. J. Reynolds or Phillip Morris raised prices of cigarettes twice a year by about 50 cents per carton. The other firms in the industry raised their prices by the same amount. Economists call this: a price war.
a. predatory pricing.
b. a price war.
c. price leadership.
d. producer sovereignty.
QUESTION 5Insurers reduce the problem of moral hazard by limiting coverage of open-ended treatments like psychotherapy or fully elective treatments like some cosmetic surgeries.
Indicate whether the statement is true or false
QUESTION 6If there are no externalities present in a market
A) the market price is too low.
B) the market price is too high.
C) the market price is in equilibrium.
D) none of these choices are true.
QUESTION 7In a collusive oligopoly, joint profits are maximized when a price leader establishes price based on:
a. its own demand and cost schedules.
b. the market demand for the product and the marginal costs of the various firms.
c. the market demand for the product and its own marginal cost schedule.
d. the demand curve faced by a typical competitor and its own marginal cost curve.
QUESTION 8The problem of adverse selection is usually more acute in case of automobile insurance compared to health insurance.
Indicate whether the statement is true or false