The price elasticity of demand is ?0.20. Demand is Select one: a. elastic b. uni

Question

The price elasticity of demand is ?0.20. Demand is

Select one:

a. elastic

b. unit elastic

c. inelastic

d. none of the above

When there are external costs, competitive markets will generally provide:

Select one:

a. more than the economically efficient level of output.

b. The answer depends on the nature of the benefits

c. less than the economically efficient level of output.

d. the economically efficient level of output.

When having health insurance increases the likelihood of using medical services and induces higher spending in the event of an illness is referred to as:

Select one:

a. supplier induced demand

b. risk selection

c. adverse selection

d. moral hazard

Explanation / Answer

Q1 The price elasticity of demand is -0.20 and absolute value is 0.20. Hence the demand is inelastic. The demand is inelastic when its absolute value lies between 0 and 1. So, (c) is correct.

Q2 When there are external costs, competitive markets will generally provide, the economically efficient level of output. So (d) is correct.

Q3. When having health insurance increases the likelihood of using medical services and induces higher spending in the event of an illness is referred to as adverse selection. Adverse selection happens where insurance takers have information than insurance providers about the usage of medical services. (c) is correct.

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