Most real economic choices involve small (or marginal) changes, rather than all-or-nothing decisions

In December 2010, Kansas had a severe ice storm that caused electrical blackouts. The Fictitious Portable Generator firm of Lawrence had several portable generators that could be used by homeowners to provide electricity

Which of the following would be the fair-rules way to provide them? A) The government confiscates the generators owned by Fictitious and distributes them. B) Fictitious is forced by the state to rent the generators at half the normal rate. C) The state sets up a lottery to determine who rents the available generators at the normal rate. D) Fictitious rents generators at the equilibrium market price. E) Fictitious follows government commands about who gets to use the generators.

The problem of moral hazard in health insurance _____

a. drives up health care costs b. exacerbates the adverse selection problem c. can cause individuals to be more careful d. creates incentives to diet and regular exercise