Microeconomics Prep Questions Midterm Chapters 1-5

The four important characteristics that define a competitive market are: {Ans: standardized goods, full information, no transaction costs, participants are price takers}In the context of insurance, moral hazard refers to: a) when people organize themselves in a group to collectively absorb the cost of the risk faced by each individual b) the tendency for people to behave in a riskier way after they have acquired insurance c) when risks are shared across many different assets or people, reducing the impact of any particular risk on any one individual d) the tendency for high-risk individuals to seek out more insurance than loa-risk individuals {Ans: the tendency for people to behave in a riskier way after they have acquired insurance}The factors of production are: a) the list of inputs required for a given durable good b) the costs and benefits of a given production process c) the ingredients that go into making any good or service d) the outputs that society as a whole have chosen to produce {Ans: the ingredients that go into making any good or service}The demand curve represents the relationship between: a) income and price demanded with everything else held constant b) income and quantity