Review Questions

4. Why might it be difficult for a buyer and seller to agree on a price when imperfect information exists?

5. What do economists (and used-car dealers) mean by a “lemon”?

6. What are some ways a seller of goods might reassure a possible buyer who is faced with imperfect

information?

7. What are some ways a seller of labor (that is, someone looking for a job) might reassure a possible

employer who is faced with imperfect information?

8. What are some ways that someone looking for a loan might reassure a bank that is faced with imperfect

information about whether the borrower will repay the loan?

9. What is an insurance premium?

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16 • Critical Thinking Questions 405

10. In an insurance system, would you expect each person to receive in benefits pretty much what they pay in

premiums or is it just that the average benefits paid will equal the average premiums paid?

11. What is an actuarially fair insurance policy?
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