Question

1. Which of the following is not an example of a condition causing market failure?
   1. very high transactions costs that make beneficial agreements extremely expensive.
   2. natural monopoly.
   3. uneven distribution of wealth and resource ownership leading to inequity in resource allocation.
   4. private decisions that lead to negative social externalities.
   5. restrictions on access to or prohibitive cost of information.

2. The largest single share of total personal health expenditures in the U.S. comes from:
   1. out-of-pocket spending by consumers.
   2. private insurance.
   3. Medicare.
   4. Medicaid.
   5. other government programs.

3. The willingness of consumers to pay more than the expected loss in order to obtain insurance coverage is an example of:

1. irrational evaluation of risk.
2. the market power of insurance companies.
3. adverse selection.
4. risk aversion.
5. the welfare loss due to insurance.

Answer 1

1) The example of market failure is : (D) private decsiions that lead to negative social externalities because market failure is caused due to negative externalities and private decisions causing externality is a market failure.

2) The largest single share of total personal health expenditure in US comes from (B) private insurance as calculated in the year 2017. It was 34% of the total NSE.

3) (E) The welfare loss due to insurance is the example of willingness to pay more than expected loss in order to obtain insurance coverage because it is loss of welfare as a whole.