True/False/Uncertain: Answer and briefly explain whether the following statement

Question

True/False/Uncertain: Answer and briefly explain whether the following statements are true, false, or uncertain. The explanation is more important than the actual “true, false, or uncertain” answer.

1) In the presence of an externality, the private market will fail to achieve the efficient outcome because consumers or producers are unaware of the external consequences of their actions.

2) In order to deal with adverse selection in certain markets, the government should impose quality standards. For instance, dealers should not be allowed to sell low-quality items.

3) A mandate that requires individuals to purchase health insurance helps reduce moral hazard in the healthcare market but does little to address adverse selection.

Explanation / Answer

1) In the presence of an externality, the private market will fail to achieve the efficient outcome because consumers or producers are unaware of the external consequences of their actions....TRUE

Explanation: Private markets fail to account for externalities because in the market the decision makers fail to take account of the external effects of their behavior

2) In order to deal with adverse selection in certain markets, the government should impose quality standards. For instance, dealers should not be allowed to sell low-quality items....Uncertain

Explanation: It is uncertain that the government could impose standards on minimum quality

3) A mandate that requires individuals to purchase health insurance helps reduce moral hazard in the healthcare market but does little to address adverse selection....FALSE

Explanation: A government mandate that requires individuals to purchase health insurance is designed to deal with the problem of adverse selection

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